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Bad Policy… Big Energy Profits

by | Oct 25, 2023

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In April 2020, oil futures contracts fell to levels we’d never witnessed. 

The April contract that expired that month fell to NEGATIVE $37. 

That means that oil companies and anyone holding those contracts — which delivered crude oil to the delivery point of Cushing, Oklahoma — were paying for someone to take oil away. It was virtually impossible to find any storage for crude oil anywhere within 100 miles of the delivery point. This was the most backward event we’ve ever seen in the history of the U.S. oil markets. 

While oil prices remained low, the Trump Administration advocated that the United States buy millions of barrels of oil to refill its Strategic Petroleum Reserve (SPR), the nation’s reserve fuel supplies in the event of a national emergency or severe supply disruption.

At the time, opponents killed the plan to purchase oil at $20 to $25 per barrel because they deemed it a “bailout” for big American oil companies. 

This may be the single biggest policy failure in Washington in our current decade. 

Today, the U.S. SPR has just 17 days of national supply remaining… and oil prices are now sitting north of $80. What could have been… 

And now… things are only heading further in the wrong direction.

Supplies Falling, Prices Rising

After Russia invaded Ukraine in early 2022, oil prices started rising precipitously. Crude prices pushed well above $100 per barrel, before a major sell-off fueled by profit taking occurred in June 2022. Since then, prices have experienced large oscillations as fund managers speculated on supply and demand factors.

U.S. ending stocks of crude oil in the Strategic Petroleum Reserve

The most recent rally saw oil prices soar from June 2023 to the fall. The rally came after OPEC announced a significant cut to daily production. This lifted crude prices from under $70 to north of $90 over a relentless 13-week rally. 

Since then, however, we’ve seen two relatively quick periods of selling. I know that might not fit the narrative around the supercycle that I’ve outlined in recent weeks, but keep in mind that funds are struggling under the weight of weak equity prices and rising interest rates. Profit taking is normal on winners to offset losers… 

Just don’t expect oil prices to pull back too much further. 

You see, the Biden administration now wants to buy back U.S. oil to refill the SPR after recklessly mismanaging our strategic oil supplies over the last year. The Department of Energy just put out a request to purchase millions of barrels of crude at $79 per barrel. The administration hopes that sellers will take advantage of the demand.

Effectively, the U.S. government has sold a put on U.S. oil prices, as the market now knows that the administration is looking to buy. The Biden administration wants to look like smart oil buyers from any weakness, but there is another detail that most people don’t consider. 

Any buying of domestic production by the government counts as positive economic growth to the U.S. GDP. It might not be much, but a half-billion dollars in buying is certainly not a loss in the GDP column. 

In addition, remember that the Energy Information Administration — the research arm of the Department of Energy — doesn’t expect oil prices to remain subdued. The EIA has a $90 price target for WTI crude in 2024, and it anticipates that Brent crude — the global benchmark — will trade north of $94.00. 

We’re just getting started in the Energy Supercycle — and I want you to take advantage today. 

Watch this short presentation on events happening right now that could send oil much higher, giving a huge win to savvy investors over the next few years. 

Chat soon,

Garrett signature


Garrett Baldwin

*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk. 

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Market Momentum is RED

Markets remain under significant pressure this week, and we’ve moved into the Fear stage of this situation. The S&P 500 is trying to find a bottom in the short term while the Russell 2000 is now in a complete freefall.

*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

WRITTEN BY<br>Garrett Baldwin

Garrett Baldwin

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