Way back in October, my colleague Larry Edelson accurately called the fate of OPEC’s efforts to depress oil production as well as lift oil prices.
Now, the most recent November deal to trim oil production has failed to tighten up burdensome global supplies. And that has been followed by a quicker and larger turnaround in U.S. shale oil production.
The perfect storm of crude clobbered oil prices, just as Larry predicted.
In fact, oil prices have returned to the levels before the November agreement. And now, OPEC and non-OPEC members are heading back to the drawing board.
As I see it, oil markets have forced OPEC’s hand. They must extend previously agreed production cuts at their May 25 gathering for fear of even lower oil prices.
And that lays the foundation for higher oil prices in the shorter term. Consider the following …
Force #1: OPEC member jawboning. This includes a stream of headlines out of Saudi Arabia, as well as Russia, talking up consensus for extending their production-cut agreement into 2018. All under the guise of bringing global supply-and-demand into balance.
Force #2: Technically oversold. The 18% decline in oil prices from March levels produced an oversold technical condition that’s ripe for a corrective rebalancing effort.
Force #3: E-Wave cycle forecast. The Edelson Wave cycle forecast calls for higher oil prices into early June. See for yourself …
As you can see, the E-Wave cycle chart above forecasts higher oil prices into early June, driven by the forces I just told you about.
But the rally isn’t going to last. In fact, after the bump higher, oil turns lower with a vengeance.
And it’s not just my cycle forecast that says oil is going lower. There are other factors at work …
First: OPEC is losing control of the oil market. As it stands, OPEC-member production represents 33% of global production. And their scheme to prop up oil prices is costing them market share, with the U.S. shale oil industry becoming the world’s new swing producer.
Second: Too much supply. Case in point is the surge in U.S. production that increased for 12 consecutive weeks to a rate of 9.31 million barrels per day. And the latest monthly report from the U.S. Energy Information Administration (EIA) pegged U.S. oil inventories at 100 million barrels above the five-year average for this time of year.
The supply dynamic is made worse by a doubling in the number of U.S. oil rigs in the last year, which points to even more supply in the months ahead.
And to OPEC’s chagrin, Iran and Libya were exempt from the November production-cut agreement and the two countries have aggressively ramped-up oil production.
Third: Waning demand on multiple fronts. One is the slow ramp-up in gasoline demand going into the U.S. summer driving season, which is running 1.6% below the same time last year.
Another demand headwind is China, with some of the world’s largest oil-trading concerns noting slower refinery buying interest.
Underscoring this point, the International Energy Agency (IEA) downwardly revised their global-oil-demand outlook from earlier this year. That’s partly because of slower economic growth in Russia and India.
So, how do you play the oil market in the months ahead?
My team and I are monitoring oil-market action going into the May 25 OPEC meeting in Vienna. Based on OPEC’s decision, we’re looking to sell a post-meeting rally to take advantage of the looming price decline. Should all my signals line up, we have our eyes on the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).
But just like in all investing, timing is everything! It’s not enough to know what to buy or sell. You have to know when to do it as well.
Good investing,
Mike Burnick
Diana Chernoff-Pate May 16, 2017
People got used to not driving as much and are spending more time in their community and upgrading their dwellings. Plus, they are not spending. Excesses, are being auctioned, sold, donated.
Pete May 15, 2017
Your oil chart shows a severe drop in oil after early June. What is the vertical axis calibration. You must have an idea because you show a big drop. Without the vertical axis the severity is meaningless.
Bob May 13, 2017
Hi Mike,
I like the idea of keeping your write-ups short and to the point, like Larry did.
However, Larry would answer questions to comments and you don’t…..WHY??
My question: If the US has so much oil….why does it import 6 million barrels per day
from Saudia?????
Bob
pissenberg May 15, 2017
Bob,
That’s a great question. The only answer I can come up with are bad deals.
Haamed from Iran May 17, 2017
Because:
1. These days oil price is very cheaper than the real value of oil.
2. Saud family accepted to trade with Dollar.
3. Saud family will use these money to buy from US or invest on US market.
4. Look at the face of Middle East now. War is around some countries. This is because of oil price more than $100 that help Saudi, Qatar and UAE to inject more money into terrorist groups.
US has big shale oil reserves for hundreds of years (maybe for 1000 years) but still buying oil from other countries.
Our government (Rohani in Iran) is so stupid to sell our oil very cheap and leave our children without oil in the next centuries.
This is Neo-colonialism.
H. Horrace Newberry May 13, 2017
For the intermediate time, oil is needed for the world economy just like blood is needed for human physiology.
But, for the longer outlook, oil’s b.t.u.’s will be replaced inevitably by various so-called “renewable” sources of energy.
Time and technology march forward together in lock step… and while the markets will resist this change intermediately, it can only follow in the longer term. So, pick your time frame and join the cycle-parade.
Haamed from Iran May 13, 2017
In the next decades some oil exporter will become oil consumers and oil price will increase. But we will see 3 next generation batteries in next 5 decades(more power, lower price, lower size) that will decrease oil demand and price. Crude oil is other option to set the oil (petroleum) price down. Only war, boycott or sanctions can increase oil price.
Haamed from Iran May 13, 2017
I mean Shale oil nor Crude oil.
b.macdonald May 12, 2017
Are you saying we shouldn’t buy SCO yet until we hear from you?
charlotte May 12, 2017
where is our M
May Real Wealth Report?
Thomas. Smith May 12, 2017
Lots going on with the markets ??????
Kent May 12, 2017
Dude, OPEC never had control of the oil market at any point in time. The Elliott Wave count is what drives the price of oil. Cycle analysis!!!!!!!! Just a different kind!
John Unertl May 12, 2017
I saw from one of Larry’s past graphs (4/18/17) that crude oil was to peak about May 3rd, then hit the skids to a low on July 25th. In the graph above you show it climbing up until June 8th,
THEN hitting the skids to a low near the end of July. Both graphs show a decline towards the end of July, but why the disparity in May. I have my guess, but would rather have your answer first. Can you let us know something?
John K May 12, 2017
Looking. Forward to a go signal on SCO!
Shaw Chang May 12, 2017
Hi Mike,
In early time, I was able to copy your article with the charts into Word and to save as *.docx, now since your format has been changed, I can only copy your article in words not the charts into *.docx. Could you please adjust into the old fashion? Thanks!
Regards,
Shaw
Haamed from Iran May 13, 2017
What is your default paste option? It must be “keep source formatting”. I think your default paste option is “keep text only” and you use ctrl+v to paste article.