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Profiting From Crude Price Action

Thursday, June 11, 2015
Money and Markets
YOUR BEST SOURCE FOR THE UNBIASED MARKET COMMENTARY YOU WON’T GET FROM WALL STREET
You can also access this issue on our website.
Strong Demand Driving Gasoline, Crude Oil Prices! Here's How to Profit ...
MARKET ROUNDUP
Dow +38.97 to 18,039.37
S&P 500 +3.69 to 2,108.89
Nasdaq +5.82 to 5,082.51
10-YR Yield -0.10 to 2.38%
Gold -$5.60 to $1,181.10
Crude Oil -$0.78 to $60.64

By Mike Larson

Everyone keeps talking about supply, supply, supply when it comes to energy. But what about demand? Ignore that, and you’ll fail to understand why gasoline futures just jumped to an eight-month high, and why crude oil is knocking on the door of its own major breakout.

Look, day after day, incredulous analysts go on CNBC and talk about how energy shouldn’t be rallying. They point to OPEC’s decision to hold its production quota at 30 million barrels per day, the still-elevated level of U.S. production, and other factors. Then they confidently predict a renewed collapse in oil, gas and natural gas prices.

But they’re missing important development on the demand front. Like today’s news that the International Energy Agency just boosted its global oil demand growth forecast.

Demand for gasoline is on the rise, especially in the U.S.

The agency that advises energy consuming nations worldwide now expects 94 million BPD in demand in 2015, up from 92.6 million BPD in 2014. That equates to a 1.4 million BPD jump in demand, up 300,000 BPD from the IEA’s previous forecast. The agency cited increased gasoline demand and improved economic growth for the bullish revision.

Speaking of demand, gas usage is climbing sharply here in the U.S. It just rose another 1.1% to 9.39 million BPD – the highest level since August 2010.

Refiners are responding by running flat out. They were operating at 94.6% capacity in the most recent week, the most since December. Gulf Coast refiners alone are sucking up the most crude oil and other production inputs since the Energy Information Administration started collecting the data in 1992!

You can see the impact this is having on gasoline here in the chart. It shows that wholesale futures just broke out from their recent range above technical resistance near $2.10 (the horizontal red line). Key moving averages are turning higher, confirming recent strength.

Wholesale gasoline futures are breaking out from their recent range.

If you believe, like I do, that rising product/output demand and prices will translate into rising raw material/input demand and prices, then it’s only a matter of time before crude oil follows suit. Heck, just to “catch up” with gasoline, crude would need to climb to the mid-to-high-$70s.

Bottom line? I wouldn’t be betting against energy here. I’d be taking advantage of the biggest bargains in more than three decades, buckling my seatbelt, and getting ready for one heck of a potential ride!

So that’s my take. What’s yours? Did you know that gasoline demand was surging? Or that global demand growth is forecast to be even stronger than expected? Or is that message getting lost because of the obsessive focus by some analysts on supply? What do you think it will mean for oil prices in the coming weeks and months? Let me know at the website when you have time.

Our Readers Speak

Meanwhile, what should the U.S. do in the Middle East? It’s not an easy question to answer, but many of you tried in the wake of the news yesterday that we’re sending even more troops to Iraq to help in the fight against ISIS.

Reader Frebon said: “We should completely withdraw from Iraq and stop all aid. This will force Iran, who cannot tolerate a radical Sunni country bordering it to the west, to engage ISIS. It will strain Iranian resources to the breaking point and may even cause the regime to topple. No matter who wins, ISIS or Iran, we win. Then with a new President we can actually decide on policy.”

Reader Richard B. added: “That well-designed Bush plan to commit to defeat the Taliban in Afghanistan with not enough soldiers … while then subduing Iraq (and sending the Iraqi army into unemployment) … turns out to be a total disaster.

“We can’t, and shouldn’t be there. It is not our fight. The Mideast has to solve this problem. We will never be on the right side of this conflict and will always be considered infidels in their territory.”

Reader Steve W. also laid the blame at the feet of the previous administration, saying: “Adhering to the adage ‘You broke it, you fix it,’ send George W. Bush, Dick Cheney, Donald Rumsfeld and the rest of the Neo-cons to Iraq to undo their handiwork. They learned nothing from history that the Middle East is a quagmire best left to the locals. Their impeccable judgment has cost the United States in lives, reputation and trillions of dollars, which would have been better spent on our deteriorating infrastructure.”

But Reader said it’s the current administration that’s not up to the task of straightening out the mess. He said: “It’s all very little and way too late. Unfortunately, our president does not seem to understand the seriousness of the situation and the prospects under Hillary do not look any more encouraging. I’m afraid for the future of our country.”

Regardless of who is to blame, the reality is that we remain entangled in Mideast affairs like never before. The costs of those military and diplomatic entanglements will continue to climb, with no end in sight. If you agree, or disagree, I’d love to hear from you at the website – which you can access here.

Other Developments of the Day

BulletSo Germany’s Chancellor Angela Merkel told Greek Prime Minister Alexis Tsipras that NOW was the time for action? After what? A half decade of talk, talk, talk on bailouts? But look now -- late reports say that the fed-up IMF has walked out of the talks, finally disgusted with the Greeks. Good grief!

BulletIt’s an odd pairing – limited government activists and union officials. But they’re both lining up against President Obama’s push for the Trans-Pacific Partnership. That’s the trade deal the U.S. wants to sign with 11 other countries, but that raises several questions about secrecy, executive privilege, jobs, and more.

So do you think the Greeks and Europeans have finally ended their talks? What about the trade deal – is it good or bad policy? Feel free to comment on these or other stories over at the website.

Until next time,

Mike Larson

(P.S. Did you miss the fourth video in Dr. Martin Weiss’ Q&A video series? Click here to tune in and learn his thoughts on the economy and investment market. Then, click here to secure your ticket for his briefings beginning on June 15 at 2:00 PM Eastern Time.)

 

Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
The investment strategy and opinions expressed in this article are those of the author's and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

For more information and archived issues, visit www.moneyandmarkets.com.

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