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I’ve heard a lot of doom and gloom about energy on CNBC and in other mainstream press. Supplies are out of control. Demand stinks. We’re going to have a glut for the next 100 years, so sell everything.
It’d all be great advice … if only those pesky facts didn’t keep getting in the way. Facts like this: Crude oil inventories are tanking. Yes, tanking!
The Energy Information Administration (EIA) just reported this morning that U.S. crude oil inventories dropped 4.9 million barrels in the most recent week. That was more than double the average forecast of analysts.
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U.S. crude oil inventories dropped 4.9 million barrels in the most recent week, more than double the average forecast of analysts. |
It was also the eighth straight weekly drop. Do you know how far back you have to go to find eight consecutive inventory declines? I’ll tell you: The end of 2007, roughly seven-and-a-half years ago.
What about the Cushing oil depot in Oklahoma, the one the media was saying would literally overflow a few months ago? Supplies there plunged another 1.9 million barrels.
While I’m at it, I’d also point out the U.S. oil drilling rig count just dropped for the 28th consecutive week. That’s the longest streak in U.S. history, and it leaves rig activity down a whopping 61% from its October peak.
Call me crazy if you want. But when I see the biggest decline in drilling activity ever … the longest streak of inventory declines since before the Great Recession … and increases in energy demand forecasts from respected sources, I see plenty of reasons for optimism. Optimism that the supply-demand imbalance that beat energy shares down in the first place is well on its way to being fixed.
“I’m optimistic that the supply-demand imbalance is well on its way to being fixed.” |
Or to cut to the chase: Forget the out-of-date, backward-looking talk in the mainstream press, and start digging for bargains in the oil patch.
Thoughts on the latest inventory data? The outlook for demand? The seemingly never-ending pessimism on this sector, despite concrete evidence of a turn starting to get underway? I want to hear from you – and the Money and Markets website is the best place for you to weigh in.
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Greece temporarily moved off the electronic “front page” yesterday, in light of the release of fresh housing data. I pointed out that the spring selling season went fairly well, as I expected, and many of you weighed in with your own thoughts.
Reader Jean had a fairly optimistic outlook, at least as long as financing costs stay reasonable. The comments: “As long as interest rates are kept low, there will be decent to good activity, as first-home buyers move on up and those just entering the market can have a chance to buy.
“Also, investors will continue to buy and rehab and resell, keeping the cycle going and improving the landscape. No one wants to rent when they can afford to buy and that is best for everyone, especially young families.”
Reader Glenn tempered the enthusiasm somewhat by noting that home construction still remains well below normal levels even now. His take: “I spent 30 years in the wood products business from 1969 to 1999 and really good years were 2-million-plus new starts. So-so years were 1.4 million to 1.5 million.
“Our population has obviously increased a lot in the intervening years, the inventory of homes is much older, and when you are talking about 522,000 new starts … well, that really does speak to the economy and demand/ability to purchase big ticket items. We have a long way to go.”
Reader Charley offered a regional perspective from out West, saying: “Denver, Colorado has seen housing shortages for remodels or fix and flip. Some remodeling contractors are going to building new houses because of it. Often prices are being upped at the table to purchase. Good for sellers.
“I wonder if this is the last hurrah ’til it turns south for at least a breather. Many of those fix and flippers actually kept the homes for rentals. So if the market turns south, it may accelerate south big time as those investors panic.”
Finally, Reader Mike S. zeroed in on interest rates as the thing that could upset the apple cart again. His observations: “The cycle of boom and now coming bust is when mortgage rates hit 5.5 percent. No one in their right mind should buy now. People who buy now at these elevated prices because of low interest rates will not be able to sell their house without taking a hit.
“Do the math: A 450k mortgage, 4 percent, 30-year mortgage … versus a 5.5 percent payment. A large portion of buyers will not be able to qualify at those elevated levels. So prices will come down.”
Thanks for all the well-reasoned comments. As the interest-rate and real-estate specialist at Weiss, I agree that financing costs are a major issue down the pike.
If employment and wage growth rises at the same time as interest rates, the market could continue to hold up fairly well. But we haven’t seen the kind of strong, 1990s-style wage expansion we need for years. So that may be too much wishful thinking coming from the real estate industry.
If you didn’t add your thoughts yet, I encourage you to do so when you get a chance. Here’s the link.
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The massive hacking attack that targeted federal government employees recently could be followed by others. Why? Because the government’s “Einstein” security system has problems ranging from delays in implementation to vulnerability to new threats that don’t at least have signatures of past attacks.
Think you’re starved for income in this low-rate world? Well, pension funds and life insurers are in even worse shape – because they’ve made long-term promises based on the assumption much higher rates of return would be available from lower-risk bonds. The Organisation for Economic Co-operation (OECD) is now warning many face solvency threats because they can’t earn anywhere near enough to cover the promises they made to beneficiaries. Just another reason why the Federal Reserve should’ve moved rates off zero a long time ago!
What’s the biggest terrorist threat America faces on its own soil? Not attacks from radical Muslims, but rather killings launched by homegrown white supremacists and anti-government fanatics. That’s according to a new analysis covered in the New York Times, and it goes against conventional wisdom.
If you’ve always wanted to get in touch with your inner Marty McFly, you might get your chance before long. Toyota has reportedly produced the first prototype hoverboard, which would allow users to glide along a few inches above the ground – just like McFly did in the Back to the Future movies. More information is set to be released in October.
Worried about more computer breaches? Have any thoughts on homegrown terrorist attacks in America, in the wake of the recent South Carolina tragedy? Then let me hear about your thoughts on those or other stories in the news over at the website.
Until next time,
Mike Larson
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I’m new here, so I might be out of turn. In any event, my family was in the oil business (e & p and gathering) for nearly 100 years. I still have many old friends who have been in it for generations and (as we all did in the ’70s and ’80s) have made a killing on the run-up. But, as we all knew going in, the boom would be followed by a bust. Now we’ve had the bust. I don’t have a crystal ball (though I would pay a fortune to have one), but the cumulative decades of mine and my friends is that, barring an exogenous shock, the price will go lower and stay there longer than you can ever imagine.
I’m new here, so I might be out of turn. In any event, my family was in the oil business (e & p and gathering) for nearly 100 years. I still have many old friends who have been in it for generations and (as we all did in the ’70s and ’80s) have made a killing on the run-up. But, as we all knew going in, the boom would be followed by a bust. Now we’ve had the bust. I don’t have a crystal ball (though I would pay a fortune to have one), but the cumulative decades of mine and my friends is that, barring an exogenous shock, the price will go lower and stay there longer than you can ever imagine.
just long enough for Peak Oil to be TRUE.
Peak Oil is a valid concept in that we have peaked out on cheap, easy to get oil. The recent flood of new production was made possible with massive amounts of QE cash that is unlikely to be available in the future. The new oil is all very expensive shale, oil sands, and offshore oil. While there are certainly unconventional projects that are possible with $60 oil, the boom is over until prices go considerably higher. Also, much of the increased
Saudi production is bring consumed domestically at 26 cents a gallon. It is my understanding that their actual exports have decreased. Long term forecasts for increased worldwide demand are encouraging as well. My family has also been in the production business for many years and I feel the price has at least stabilized here and will be headed higher in the not too distant future. Jim
Follow the money: Money & Markets (someone) need to research the sales tax revenue stream to each state to see if the nation as a hold has recovered to the level prior to 2007. Here in Baldwin County, Alabama, the Board of education hasn’t recovered to the level of revenue achieved at the end of 2007.
Has the economy really recovered? Food Stamps and other programs are the modern day soup lines.
The key to this entire discussion is Saudi Arabia. I think we can agree that they are smart, cold, and calculating. The goal of a policy that reduces exploration and production to crimp supply and discourages development of new Green Energy projects to maintain demand is $100 oil, period! That’s what they want and what they will get. Not only are prices headed higher we could well see another “shock” that takes all the brilliant commentators on CNBC completely by surprise.
Oil inventories down? Well, crank up the rigs!! While I can cut my petrol use by 90% why should I just to inconvenience myself? Besides, I hold XO< and CVX both considerably off from a year ago. I would not mind $5 a gallon gas, but seems others might.
Actually, XO and CVX Should survive the oil bottom nicely. Even if you buy them now and maybe see them fall a bit more, sooner or later they should recover and show a profit. Oil COULD fall further, to a lower real bottom, and stay down for awhile, as the Saudi’s war on frackers continues. It aint over til it’s over.
If the “Crazies” do start running violent attacks on Big Government and those of other races or religions, it will fit right into the programs of those who want to see even more government control of our lives. You can’t promote Freedom through anarchy, anymore than through dictatorship.
balderdash 1.
Not surprised that the New York Times would attack white Americans after the heinous attack on the Charleston church. Have they forgotten what happened on their overpriced island almost 14 years ago? The foiled attack on Times Square? The successful attack on the Boston Marathon? Or in the Middle East, the wholesale slaughter of Christians by muslim nutjobs? Almost everything the New York Times produces is garbage.
balderdash 2.
Just for the record. I was born and raised in the Deep South and have a Confederate Battle Flag and bonds on my office wall and I have never once in my life contemplated harming an African-American. They, like anyone else, are my friends, neighbors, and co-workers. Because I honor my ancestors who fought and died under that flag does not cause me to hate anyone. Well, maybe Bill Sherman, but I wouldn’t hurt his ancestors either. That being said, I must acknowledge that I understand how displaying that symbol, which they find so offensive, on public grounds is inappropriate and I am not offended by its removal. Symbolism over substance is growing rather tiresome though.
Where is the pain? I live in the Houston area, which is very dependent on the oil industry, and I have not seen the pain we saw in 1986, not as of yet. There has been pain in the service sector, to a degree, but no E&P companies have gone out of business and there are lots of uncompleted wells that are slowly being fracked, completed and coming on line. All oil prices have to do is hold in the mid 60s and you will have a lot of new domestice production coming on line. We will have to see a retest of the mid 40s on oil to really cut production in the U.S. and the saudis are willing to wait. The best pain barometer is the Houston housing market which is still holding up quite well , with very little increase in inventory on the market.
I disagree. You seem to assume that there is no time lag between rig count and production. Look at the history. You will see that it takes 6-9 months for production to peak after rigs start declining heavily. It amazes me how many of these self-proclaimed experts gloss over this fact time and time again so it’s understandable why so many are confused. The article states that rig counts have declined 28 weeks in a row. That’s about 7 months, and what do you know we’re right in the middle of a recovery from the 40s and 50s. We’ll continue to inch our way up to the 70s and then we can have a talk about how domestic production is creating an oil glut. If you’re an investor, unfortunately you’ve missed out on a lot of strong recoveries on leveraged companies already if you’ve been waiting for production to peak.
I ate lunch in Oil City, La. today. It’s a ghost town! Jim
100,000 lost jobs and $900,000,000,000 in canceled oil projects sounds like pain to me.
You simply can’t sell houses cheaper than you can build them, that’s the economic reality of it all. Prices for materials and labor are increasing. I saw the big housing crash coming and warned people not to buy, but many didn’t listen. My guy and his wife came to look at the house next door to us, they wanted 220k for it though the last owner had paid 64k for it two years before. I told them the price was ridiculous but they bought anyway (this was in 2006) well five years later they went bankrupt to the tune of 280k still owing 220 on the house. A blind man could have seen this housing crash coming, but now things are getting back to normal and I just bought another house a few weeks ago so now I’ve got 5.
The demand chart from a few weeks ago looked good and I thought that the rebound in oil might continue its mini run….. but it did not pan out. Sometimes that happens. Now, I do not share your enthusiasm, Mike. I again think oil is headed down longer term. And the drop should be fairly significant.
fred 1,I completely agree with you,the arabs are pumping like hell,when they slow down and fracking is nearly dead,then the price SHOULD start rising,just thing aloud.
The Arab fields are sixty to eighty years old. They are way past prime. They increase production by pumping more sea water into their formations. This has its practical limits and is a practice they may severely regret before very long.
Yes, conservatives are the biggest threat. They’re only a threat to liberal power, so they have to be labeled dangerous. Amazingly, wait and see how much traction this stupid story gets.
When gasoline prices dropped it was because the oil companies had overproduced. I warned of this a year ago. All booms have gone to bust in time, in the past usually when the enormous Rockefeller interests decided to cut down domestic production and bring in cheap Arab crude. Most of the oil refineries in the Southwest were shut down forever. Most of what are left are the coastal refineries to process Rockefeller imported crude. So this time they decreased their domestic exploration, drilling and production facilities to create scarcity and bring the price of fuel back up. In the Permian Basin, for example, they are really cutting back from their exuberance only a year or so ago, building skyscrapers in the desert cities of Midland and Odessa. That is all replaced by despair already.
I remember two things from my grade school days. The first was when I confronted my parents about the terrible things the Germans were doing to the Jews, which information I learned from a teacher. My parents, while agreeing “it” was awful, did not think the US should get involved. The second thing I remember was Dec. 7, 1941. My parents then put their heart and soul into the “war effort,” and thought we should do everything possible to defeat the tyrants. What will it take to stop ISIS? The article in The New York Times is ridiculous.
True enough, Jo. I suppose we will confront ISIS when they come marching down Broadway, in New York, New York. Maybe the media will notice them then.
I tend to agree with Bill. But If I was as financially independent as Elon Musk, I too would be heavily looking for new tech ideas to grow energy that would supply each building independently. This would make this country stronger because no terrorist plot could take down the grid and the government wouldn’t have masses of people in panicking. just like armed citizens thwarts countries from attacking.
It would be great if demand for carbon fuels dropped but I’m not holding my breath, although that may be the next thing we have to do. At the same time as representatives are meeting to desperately arrive at an agreement the stands a chance of minimizing the climate change, and scientist are continuing to produce news of the scariest sort, Prognosticators are simply ignoring the subject and discussing the carbon energy market as though it operated on another planet, not ours. I am pessimistic that the world will respond, and I agree with what you say on the opportunity in energy, I just wish to have a nod to the fact that the a rosy investment result is also a tragedy for life on the planet.
Just saw an item about how our wonderful politicians, with their plethora of rules and regulations are harming even our technology industry, where we still have a lead over most of the world. Tech companies hire lots of foreign engineers, etc., because they often excel at the stuff, but immigration authorities often hamstring their entry to this country. Now Canada, Britain and Australia are advertising to U.S. companies to move to those countries, where rules are much simpler. That would mean more high paying jobs lost in this country. Career politicians have certainly become our enemies within, though I doubt if one American in a thousand realizes it…yet.
I have been on your mailing list for years. Somehow, my name was dropped. I would appreciate very much being active again on your list!!!!
Please put me back on your email list. Somehow my name was dropped. Thanks!
Terror does come in all shapes and sizes including government issued. Take the increase in home invasions when the police swat teams target the wrong house or even the wrong people. Look at the couple from N.C. whose $115,000 was take as well as trashing their home and merchandise. The militarization of police, military maneuvers by our armed forces in our own homeland (Jade Helm) coming in a place near you this summer as well as thousands of new regulations contribute to us vs, a government gone wild and in many instances unconstitutional…..We here in oklahoma know about home grown terrorists. In fact when one considers lives lost per population Oklahoma loss measures up to the more “significant” 9/11 tragedy! Of course we are not in the center of the Universe directing the world thru politics and banking so maybe not so important to many. Hmmmm. Obviously the Times article rattled my cage…only one thing lacking …left out the Prolife Xians….then we would have the all appropriate terrorists to target. Don’t forget that most of our forefathers who brought about this wonderful experiment in liberty would probably been considered terrorists in 1770-178-.
Tom Ewing, ole Texas boy currently residing in Oklahoma (the REAL center of the Universe) Ha, Ha
Just more energy/stocks hype from Mike Larson..claims he’s Weiss realty/interest rates specialist, but yesterday’s report was more boring 99% energy hype. Whether oil’s $100 barrel or $40 he screams buy!!! Last week he said it’s in bull-market. Rubbish! It’s still a bear
Mike Larson is a one-trick-pony who got his 2014 oil/energy call horribly wrong..urging us to buy at $100 barrel..News flash: oil is just 1 year into its bear-market..Gold is more than 3 years into its bear market..These things take time to turn-around..can the hype, please..
All these shootings: I have two words: mental illness.
The days of hostage-taking and bank robbery shoot-ups are long gone, and mass shooting incidents have actually been declining for several decades. But the sporadic mass shootings of the last 20 years are perpetrated by people with one common characteristic: they’re mentally ill. Many have been in and out of psychiatric treatment, and the rest should have been. Some were or had been on psychiatric medication. Because of HIPAA and other legal changes in the late 1990s, it has become very difficult for families, social workers, judges, and police to keep track of such people and do something about them.
And it isn’t just shootings. Many cities in the US have seen a spate of mentally ill people pushing pedestrians into traffic or on to train tracks, for example.
It’s a 50-year-plus-long social experiment long since become a failure: trying to “normalize” those with serious mental illness. Most are not a danger to others, only to themselves. But contrary to the PC propaganda that controls the subject, certain types of mental illness (paranoia in particular) do make those who suffer from it more dangerous to others.
Interesting, how paranoia in particular seems to be epidemic among Muslims and their sympathizers. Could it be because it is contagious? Psychologists may reject that idea, but look at the evidence. Nazi Germany also had a large epidemic of the disease, but it was better contained that time. At quite a high cost, to be sure. What will be the cost this time?
Notice I don’t say ALL Muslims have caught paranoia, any more than all Christians caught it during the Middle Age Crusades. But enough have to begin branding adherents, just as gay men were branded with being carriers of HIV a few decades ago.
Mike, you are spot on when this market in bonds and currency collapses where is the money going to go, gold silver oil and all the commodities.
oil is gold.
Investment in pawn shops will fly.
what about all the reports of oil tankers all over the world full of oil just waiting for oil prices to rise so they can sell for huge profits? true or false?
Demand is the next to drop on an 1- 5 year basis, which will drive the prices down on the next leg, which will likely be a good entry on the long side regardless of whether or not it is cyclical or secular low. Think China downturn, debt liquidation, Central Bank reduction of it ridiculous actions. Deflation is the phase we are in in accordance with the Kondratieff Theorem which has right hand translation to the idiocy of the world Central Bankers who delude themselves into thinking that they can supplant the laws of supply/demand and micro-manage the world economy. IF, crude rises to $60-$75 per barrel, I’m a seller. If crude drops to $20-$30 a barrel, will buy the strong international conglomerates that can withstand the uncertainties that we all face in this contrived world economy.
Lmao white supremacist, what a joke , do they even exist anymore ? You can’t be serious , if they were any kind of serious threat then why isn’t Obama dead or somekind of news report about how close Obama came to being killed but the attempt was thwarted. No I would say that our biggest threat is our own government . On so many levels I can’t begin to explain our government has created problems for us that any one or two would be enough but why take chances they have insured that we are buried . No exaggeration there must be somewhere between 20-25 things wrong that need dire attention but are getting none and those are just the ones y are obvious . I assure you there is much more that we have no clue about .And the icing on the cake is when he turns loose Isis upon us .make no mistake they are here . All our markets are being manipulated and are fake . they will fail when they pull the plug from the weight of all the debt he has added .