Another Oil Glut?
Geoffrey A. Smith, DTI’s Chief Instructor
In August I posted an article about the crude oil inventories and the excess crude the US is producing. At that time crude oil futures were trading around $95 a barrel. As we enter in to the last quarter of the year, crude oil futures are trading at $87 a barrel and heading lower. To put things in perspective for your wallet, gasoline has dropped from $3.15/gal (futures/wholesale without taxes) in June to a current price of $2.30/gal. Yes, that is $0.85/gal, and no, we have not seen that at the pump….yet. Prices have dropped about $0.50/gal, but with the volatility of these commodities, companies are keeping a little premium in the price because of the geopolitical problems still in existence.
The pressure is still on. Even California, that has basically outlawed fracking and imported most of their crude for refining, is now using the shale oil out of the Dakotas since they figured out how to get the old fashioned way, the railroad. Exports of US crude have been on the increase, and we have now had our largest exports since 1957 (57 years ago). This is worrying the OPEC countries and just this week, they cut the price of crude to compete. Wait, that sounds a bit like competition…capitalism at its best. At the current pace, the US will be the world’s largest oil producer by next year. This is all bearish for crude and bullish for the wallets.
Below is a weekly chart of crude utilizing DTI’s RoadMap™ market analytical software. We are approaching the 2013 lows around $85 a barrel. If crude can break below $84 on a closing basis, the next target should be the $77 area. That will have gasoline approaching the $2.10 – $2.00 per gallon area (wouldn’t that be nice). Only time will tell. If crude gets back above $90, it will probably push back to $92-$95 a barrel, but with the current trends and inventories, that is unlikely in the near future.
Good luck trading!