Oil gusher starting to rumble?

I’m sure you’ve already read about how the oil markets have been bouncing around recently, and with some encouraging signs.

But you probably haven’t been let in on the significant events happening within the Organization of Petroleum Exporting Countries (OPEC) that make this new dynamic even more interesting, specifically regarding Saudi Arabia.

These events are promising a different future to oil production, supply and pricing than we have seen for the past couple of years.

That means a historic buying opportunity may be nearing.

First, Saudi Arabia has switched oil ministers for the first time in three decades. Saudi Arabia is the de facto leader of OPEC, whether anyone wants to admit it or not. The other countries involved are Nigeria, Angola, Ecuador, Iran, Kuwait, Libya, Algeria, Qatar, United Arab Emirates and Venezuela.

Most of those countries are economic basket cases at this point. And there has been a lot of pressure from Iran, Venezuela, Ecuador, Libya, etc. to cut production and raise the price of oil so their economies could recover.

But Saudi Arabia was out to teach upstarts including U.S. producers and the Russians what being the alpha dog in oil was all about, regardless of the cost.

And that cost didn’t just hurt the U.S. oil producers and workers, it hurt Russia’s, Iran’s and those of other emerging oil producers. It also hurt Saudi Arabia.

Now, with new leadership as a metaphor, OPEC is slowing down production and prices are flirting with $50 a barrel, which we haven’t seen in a relatively long time.

But bear in mind, this is the driving season in the U.S. and Europe. And seats for air travel are also in higher demand during the summer months. You have to be careful not to get sucked into short-term moves or mistake them for long-term trends.

The U.S. oil industry is getting some much needed relief from short-term factors, but it’s still rather weak when all is said and done. A lot of exploration and production companies are continuing to go bankrupt and big operations are bleeding billions every quarter.

It’s gotten so bad that Shell, the oil giant whose quarterly earnings dropped by $4 billion compared to the same quarter last year, recently announced that it’s ending its 24-year sponsorship of the golf tournament the Houston Open.

Spillover from the huge drop in revenue and profits have yet to reverberate through the banks that loaned these firms lots of money or gave them lines of credit. That is a mess that will slow down broader U.S. recovery.

The Saudis have seen their revenues drop by billions in the past two years of playing oil-price chicken. They haven’t actually lost money, but since their economy is completely reliant on oil revenues, the past couple years have seen some parts of its citizenry grow restive as what’s available to dish out from the coffers has dropped. Saudi Arabia is also involved in a war in Yemen and is committed to backing anti-Assad forces in Syria.

Wars cost billions, as you and I can attest to, and that’s likely why Saudi has made the grand gesture of allowing prices to rise — as much for itself than any of its OPEC members or strategic allies.

I’m not completely sold that we just saw the bottom of oil prices. The second half of 2016 is supposed to be weaker than the first half of the year and after the summer holiday season oil prices could again plummet as more production comes back on line in Russia, the U.S. and other spots.

I’m cautiously optimistic here, but I’m going to wait until August or September to see how this new Saudi position and the rest of the energy markets play out. Certainly, Chinese demand remains low and Europe isn’t firing on all cylinders.

But when the turn happens it will be a great time to pick up quality mid-stream players (pipeline companies) first and then start to look for solid producers with big sustainable dividends.

— GS Early

The post Oil gusher starting to rumble? appeared first on Personal Liberty®.

from PropagandaGuard https://propagandaguard.wordpress.com/2016/06/23/oil-gusher-starting-to-rumble/

from WordPress https://toddmsiebert.wordpress.com/2016/06/22/oil-gusher-starting-to-rumble/