Forget OPEC, North American Energy Plays Bring Profits Home

The Energy Report: Byron, welcome. You recently attended the Platts Conference in London, which addressed shifting energy trade patterns in light of growing U.S. export prospects and dwindling exports from South America and Africa. Has OPEC's role diminished?

Byron King: The short answer is yes. OPEC is struggling right now. The Middle East, the West African producers and Venezuela are struggling. The West African players and Venezuela have seen exports to the U.S. decline dramatically. In countries like Algeria, oil exports to the U.S. are essentially zero, while Nigeria's exports to the U.S. are way down. The oil these countries export tends to be the lighter, sweeter crude, which happens to be the product that is increasing in production in the U.S. through fracking.

The east-to-west trade pattern for oil imports to the U.S. has essentially gone away. This does not mean that the oil goes away. It means these countries have to find new markets for their oil which they are doing, in India and the Far East. But that disrupts trade patterns as well. Imports from the Middle East to the U.S. are falling as well. These barrels tend to be the heavier, sourer crude that U.S. refineries are geared to process. Continue reading "Forget OPEC, North American Energy Plays Bring Profits Home"

Crude oil looks cheap, doesn't it?

Crude oil looks cheap, doesn't it?

Just because something looks inexpensive doesn't mean that it's necessarily a buy. It's very possible for crude oil (NYMEX_CL) to rally up into the low 70s, but you have to remember that it would still be in a bear market. We have seen very few counter trend rallies in this market since it began its amazing fall from grace. The liquidation of the hedge funds and speculators from this market pushed crude down so much that OPEC had to have an emergency meeting. During that meeting, they agreed to cut production by a total of 1.5 million barrels a day. I don't believe for a second that they are going to follow through with that plan. I don't think its every going to happen.

OPEC is now between a rock and a hard place, and is being forced to continue pumping oil because of other financial commitments. Most if not all of the OPEC countries have recently put economic programs in place, all of which require further funding. These economic programs are now having to be financed from a lower income stream. I doubt seriously, giving the players in OPEC, that they will live up to their word to cut output levels. They need the money much like a drug addict needs a fix.

I expect certain countries (Venezuela and Russia) to continue pumping as much crude as they can, so that their socioeconomic infrastructure does not come to a screeching halt. As I have said before, trading this market with a technical program and a game plan far exceeds just looking at the fundamentals. The fundamentals always come in late and after the fact. Market action, and market action alone, determines the trend for not only crude oil, but also for all of the other markets.

Remember, when you are trading against the major trend you should always use positions smaller than if you are trading with the major trend. I believe that the conservative play would be to allow crude oil to rally, and then sell the rally when you have a technical signal to do so.

Every success,

Adam Hewison
Co-creator, MarketClub