Oil Prices Could Head Back Over $50 Before Year End

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Includes: USO
by: HiddenValueInvestor

Summary

Growing U.S. petroleum exports could balance U.S. oil supply and demand more quickly than the market expects.

Oil and fuel storage in the U.S. could return to the middle of the range of the five-year-average based on the growth in exports.

The easiest and most direct way for investors to participate in a near-term rise in oil prices is to buy shares in the United States Oil Fund on the stock-market.

A surge in exports of oil and finished petroleum products could send West Texas Intermediate crude oil prices back over $50 per barrel before the end of the year. A recent New York Times article highlighted the new oil export terminal in Corpus Christi, Texas. According to the paper, "Suddenly buyers from all over the world are purchasing the new American supplies, from South Korea to India - even oil-rich Venezuela, which uses the light sweet crude that comes out of American shale to blend with its gooey heavy crude. The light crude is highly prized even while global oil markets are saturated."

Below is a picture of an oil tanker entering the port at Corpus Christi. The photo is by Brandon Thibodeaux for The New York Times:

Light sweet crude oil has less sulfur than sour oils, and takes less time and is easier to refine than heavy oils. The lighter and sweeter the better. And some of the lightest and sweetest oil in the world is West Texas Intermediate produced in the U.S.. Just take a long look at the chart below and consider how U.S. oil available for export compares to other oils around the world:

It is not clear how much ultimate demand there will be globally for West Texas Intermediate oil. That is because Congress only passed a bill in December of 2015 to lift the 40 year ban on crude oil exports. The first shipments did not start until January of 2016. The country has only been building export infrastructure and soliciting customers for one and half years. But those efforts are rapidly producing fruit.

Here is a look at tables and charts from the most recent EIA Weekly Petroleum Storage Report:

The print on the table above may be small and hard to see. On line (9) it shows exports. For the week ended July 7, 2017, crude oil exports rose to 918 thousand barrels per day. This was up from 768 thousand barrels the week before. And it was up from 598 thousand barrels the year before. Because of the quality this oil it is possible exports could rise much higher.

However, it is not only crude oil exports that are rising, but finished petroleum products as well. Just look at the table below:

Petroleum product exports have risen to 2,579 thousand barrels a day last week from 1,435 thousand barrels a year ago. The increase in exports is helping to bring total fuel storage back into the normal range of the five-year-average. Below is a look at the current storage situation for crude oil and several different petroleum products: Here is a look at crude oil storage:

Notice that crude oil stocks may soon move back into the range of the five-year-average after having been above the range for many months. While exports of crude products are a factor, so are exports of petroleum products. Here is a look at current storage levels for gasoline:

Total motor gasoline stocks have already moved back into the five-year-average. The surge in petroleum product exports could be instrumental in bringing gasoline storage levels back into the normal range. Other petroleum products storage levels are also moving back in-line with normal storage averages. Here is a look at distillate fuels:

Distillate fuels include diesel for trucks and cars. These fuels are also close to returning to the normal range. As can be seen from the charts above, oil and petroleum products were well above the normal storage range of the five-year-averages a few months ago. Now they are all moving back into the normal ranges. With exports growing more quickly than expected, we may see oil and petroleum products move back into the middle of the range of the five-year-averages before year end. This could be the trigger to move West Texas Intermediate prices back above $50 per share.

For investors the simplest way to participate in a potential rise in oil prices would be to purchase the Unites States Oil Fund (USO) that tracks the price of West Texas Intermediate crude oil prices. The call for a potential rise in WTI oil prices back above $50 is based on fundamental and not technical analysis. Investors could check out this Seeking Alpha article for a look at the technical picture for the United States Oil Fund.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.