OPEC Shenanigans and What’s Next for Oil

Hopefully you heeded my warning about why the OPEC agreement was doomed to fail, leading to a sharp decline in crude oil prices.

Crude oil is down 14% from the October 19 high, OPEC is scrambling for unity and all the talking heads and newswires are touting how an OPEC deal might not happen. I hate to say I told you so, but …

Plunging crude oil prices and a severe loss in credibility has OPEC playing defense and concocting a new strategy. It’s becoming increasingly important for Russia, Saudi Arabia, Iran and Iraq to sharpen their pencils and hash out a “deal” at the November 30 OPEC meeting.

And still, that may not be enough to maintain relevence and engineer higher crude oil prices.

BulletFor instance …Saudi Arabia’s mid-October international debt offering of $17.5 billion was met with strong demand and virtually finances this year’s current account shortfall. This reduces pressure for taking the oil market higher.

BulletRecord October OPEC crude Oil production of 34.0 million barrels per day – leaves a cushion for a production freeze or a “token” cut. Here again, a cut would only reduce production back to levels a couple of months ago when talks first began. A meaningless gesture, as I’ve said all along.

Deal or No Deal – Crude Oil Goes Lower

OPEC member nations contend with a lull in seasonal demand, which translates into reduced interest for their oil and further detracts from a substantive production freeze – or at most a minimal cut from record levels.

In the event a deal is reached and crude oil prices rally – the upside is limited anyway.

This is because many higher-cost U.S. producers will come back on line to take advantage of temporary higher prices and boost supply. This ultimately pushes oil inventories right back to lofty levels and adds to already burdensome supplies that are at their highest seasonal level in more than 20 years. Just take a look for yourself …

Plus, as I noted previously, the U.S. is now in the catbird seat, the swing producer that can derail any OPEC agreement. Recently, for instance, Baker Hughes reported the U.S oil rig count hit eight-month highs at 432.

Meanwhile …

My A.I. forecast remains bearish crude oil, with a low not in place until early next year … probably, believe it or not, below $26.

1104mama

Best wishes,

Larry

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Comments 58

  1. dave November 4, 2016

    Does Larry have a specific advisory service for gold and silver. If so what is it and how much does it cost?

    Reply

  2. dave November 4, 2016

    Does Larry have a specific advisory service for gold and silver. If so what is it and how much does it cost?

    Reply

  3. Charlie November 4, 2016

    I wonder what that scenario does for Construction, Consumer spending, and Gold & Silver pricing ?

    Reply

  4. Root November 4, 2016

    New replacements for oil is something I hear about constantly. The New Texas Oil–the liquid natural gas–the new discoveries from sand. Why keep talking about past energy sources from oil when new things are taking its place.???

    Reply

  5. Root November 4, 2016

    New replacements for oil is something I hear about constantly. The New Texas Oil–the liquid natural gas–the new discoveries from sand. Why keep talking about past energy sources from oil when new things are taking its place.???

    Reply

  6. Howard November 4, 2016

    Hi Larry

    One of the most telling examples of the bond market’s crazy direction is with the recent Saudis mid-October international debt offering of $17.5 billion. Yes it was met with strong demand but consider this. The longer dated twenty year components of this offering are unlikely to see their capital returned. It’s a Ponzi scheme. Saudi Arabia are using these sales to prop up this year’s budget shortfalls. Where does anyone believe that in twenty years the Saudis will be able to repay the capital with oil going the way it is. This is an example of collapsing bond market madness, to allocate say pension fund assets in such a frivolous manner.

    Reply

  7. Howard November 4, 2016

    Hi Larry

    One of the most telling examples of the bond market’s crazy direction is with the recent Saudis mid-October international debt offering of $17.5 billion. Yes it was met with strong demand but consider this. The longer dated twenty year components of this offering are unlikely to see their capital returned. It’s a Ponzi scheme. Saudi Arabia are using these sales to prop up this year’s budget shortfalls. Where does anyone believe that in twenty years the Saudis will be able to repay the capital with oil going the way it is. This is an example of collapsing bond market madness, to allocate say pension fund assets in such a frivolous manner.

    Reply

  8. Lynn Hayes November 4, 2016

    Hi Larry,
    I simply want to THANK YOU for the excellent job you’ve done all these years (since 2002-03 approximately), when I first joined Safe Money Report and then RWR, when it launched. I don’t know what I’d do without you, and you have been my top analyst/advisor ever since.

    I’m also very grateful for your Money and Markets (e-zines) coming more often now, as things draw closer to the insane ride we will all experience. So, keep up the great work, and know that many look to you for first rate analysis, timing and guidance. 🙂

    Oceans of THANKS to you, Larry…
    Lynn Hayes

    Reply

  9. Lynn Hayes November 4, 2016

    Hi Larry,
    I simply want to THANK YOU for the excellent job you’ve done all these years (since 2002-03 approximately), when I first joined Safe Money Report and then RWR, when it launched. I don’t know what I’d do without you, and you have been my top analyst/advisor ever since.

    I’m also very grateful for your Money and Markets (e-zines) coming more often now, as things draw closer to the insane ride we will all experience. So, keep up the great work, and know that many look to you for first rate analysis, timing and guidance. 🙂

    Oceans of THANKS to you, Larry…
    Lynn Hayes

    Reply

  10. Marvin Castle November 4, 2016

    Larry are you saying it’s okay to short oil? Marv

    Reply

  11. Vernon November 4, 2016

    Don’t quote me. I believe this is part of the strategy of our Government to kill the oil and gas production industry to promote the idea of global warming. We must be vigilant to protect and not destroy our world but don’t forget that man did not create the world and all the universe – God did. Global warming is a political control strategy.

    Reply

  12. Vernon November 4, 2016

    Don’t quote me. I believe this is part of the strategy of our Government to kill the oil and gas production industry to promote the idea of global warming. We must be vigilant to protect and not destroy our world but don’t forget that man did not create the world and all the universe – God did. Global warming is a political control strategy.

    Reply

  13. john eastman November 4, 2016

    Works for me! As very least the working families of this country can at lease get some relief at the pump! The Airlines can put some fat on after two decades of massive losses.
    You called this one Larry!

    Reply

  14. john eastman November 4, 2016

    Works for me! As very least the working families of this country can at lease get some relief at the pump! The Airlines can put some fat on after two decades of massive losses.
    You called this one Larry!

    Reply

  15. Pat November 4, 2016

    Article covers only half of the picture. Where is the demand analysis in this ‘sky is falling’ prediction.

    Reply

  16. Steve November 4, 2016

    So why didn’t you have us play SCO 2 weeks ago when it started to fall. Instead you have us buy SCO today when it had already gone down $5.50from its resent high. Thought you where changing your ways. All that potential profit gone. We know that we have to risk money to make it but moves like these leave me to wonder what I bought into, especially. After you say you made a call but left us out to dry.

    Reply

  17. Steve November 4, 2016

    So why didn’t you have us play SCO 2 weeks ago when it started to fall. Instead you have us buy SCO today when it had already gone down $5.50from its resent high. Thought you where changing your ways. All that potential profit gone. We know that we have to risk money to make it but moves like these leave me to wonder what I bought into, especially. After you say you made a call but left us out to dry.

    Reply

  18. Ernie November 4, 2016

    Earlier this week you said “sell (DWTI)”. Now, today, you said “buy (SCO)”.
    I am confused. Please explain.

    Reply

  19. Ernie November 4, 2016

    Earlier this week you said “sell (DWTI)”. Now, today, you said “buy (SCO)”.
    I am confused. Please explain.

    Reply

  20. Marge Wheatley November 4, 2016

    we WILL be the cash less society.???.what happens to the value of our cash in our savings accounts and the value of all the money printed by the FEDERAL RESERVE INVESTED IN BONDS……..HOW can we possibly be cashless….please clue me in ………..THANKS!!!
    mrw

    Reply

  21. Marge Wheatley November 4, 2016

    we WILL be the cash less society.???.what happens to the value of our cash in our savings accounts and the value of all the money printed by the FEDERAL RESERVE INVESTED IN BONDS……..HOW can we possibly be cashless….please clue me in ………..THANKS!!!
    mrw

    Reply

  22. mike November 4, 2016

    i like to see your A.I. for housing and reit.
    thank you

    Reply

  23. Bob Schubring November 4, 2016

    The “catbird seat” assertion is premature, in my view, because the US Government does not actually own any oil well. Oil produced on federal land and undersea, is produced by privately-owned wells and pumping equipment, whose owners pay a cash royalty per barrel of oil recovered. There is no mechanism here, by which the US could subsidise producers to induce them to sell oil below production costs.

    Russia and Saudi Arabia, in contrast, do have the ability to order the wells to pump faster than world demand, and intentionally sell oil at a loss. They’ve been in a price war with each other for 2 years, each attempting to distinguish itself as the most-reliable supplier from whom China can make long-term procurement contracts.

    Russia’s stated intention, is to incent China to make cash payments to Russia, to hold oil off the market and keep it in reserve, in case supply disruptions elsewhere, force China to get more oil from a trusted source. Saudi Arabia is attempting to overcome the Russian advantage and is failing. That’s because Russia’s pipeline can speed up deliveries in minutes, by switching on more pumps and increasing the pressure and thereby, boosting the flow volume. Saudi Arabia needs to hire tank ships, fill them, and send them steaming across the ocean to China, which adds more than a week of delays.

    What will likely happen this month, when the OPEC talks collapse, is that China will commence making the cash payments to Russia, to hold some Russian wells in reserve. China will obtain some of the cash, that pays those cash payments to Russia, by taking advantage of collapsing oil prices globally.

    That is, I anticipate China to buy some dirt-cheap Mideast oil in 1Q2017, and pay cash to Russian producers, who in return, will cut back production and assign oil reserves yet in the ground, to China, for future delivery. China will get the cash to pay Russia, from a surplus of cash it will have on hand, due to falling Mideast oil prices.

    While this is happening, there will be ample opportunity to earn money by shorting US oil drillers, particularly the ones with excessive debt loads and weak price hedging.

    What will ultimately bring the Mideast to it’s senses, I expect, is the realization that gold must be sold from their reserves, to pay for cash purchases that their oil sales do not cover. That, IMHO, will finally cause some sensible thinking in the Persian Gulf oil community.

    Reply

  24. Bob Schubring November 4, 2016

    The “catbird seat” assertion is premature, in my view, because the US Government does not actually own any oil well. Oil produced on federal land and undersea, is produced by privately-owned wells and pumping equipment, whose owners pay a cash royalty per barrel of oil recovered. There is no mechanism here, by which the US could subsidise producers to induce them to sell oil below production costs.

    Russia and Saudi Arabia, in contrast, do have the ability to order the wells to pump faster than world demand, and intentionally sell oil at a loss. They’ve been in a price war with each other for 2 years, each attempting to distinguish itself as the most-reliable supplier from whom China can make long-term procurement contracts.

    Russia’s stated intention, is to incent China to make cash payments to Russia, to hold oil off the market and keep it in reserve, in case supply disruptions elsewhere, force China to get more oil from a trusted source. Saudi Arabia is attempting to overcome the Russian advantage and is failing. That’s because Russia’s pipeline can speed up deliveries in minutes, by switching on more pumps and increasing the pressure and thereby, boosting the flow volume. Saudi Arabia needs to hire tank ships, fill them, and send them steaming across the ocean to China, which adds more than a week of delays.

    What will likely happen this month, when the OPEC talks collapse, is that China will commence making the cash payments to Russia, to hold some Russian wells in reserve. China will obtain some of the cash, that pays those cash payments to Russia, by taking advantage of collapsing oil prices globally.

    That is, I anticipate China to buy some dirt-cheap Mideast oil in 1Q2017, and pay cash to Russian producers, who in return, will cut back production and assign oil reserves yet in the ground, to China, for future delivery. China will get the cash to pay Russia, from a surplus of cash it will have on hand, due to falling Mideast oil prices.

    While this is happening, there will be ample opportunity to earn money by shorting US oil drillers, particularly the ones with excessive debt loads and weak price hedging.

    What will ultimately bring the Mideast to it’s senses, I expect, is the realization that gold must be sold from their reserves, to pay for cash purchases that their oil sales do not cover. That, IMHO, will finally cause some sensible thinking in the Persian Gulf oil community.

    Reply

  25. Jimmy November 4, 2016

    Great advise for me as a real small investor. I certainly accepted it.

    Reply

  26. Jimmy November 4, 2016

    Great advise for me as a real small investor. I certainly accepted it.

    Reply

  27. arthur ruoff November 4, 2016

    SIR
    CASEY RESEARCH HAS AN ARTICLE ON GOLD IN WHICH HE WRITWS ABOUT A GROUP OF COUNTRIES ARE DISCUSSING CHANGES THE RULES FOR GOLD SO THAT ISLAMS CAN OWN IT.HE CLAIMS THIS WOULD INCREASE THE DEMAND FOR GOLD BY $3T. PLEASE COMMENT.
    THANK YOU.
    ART RUOFF

    Reply

  28. jefe November 4, 2016

    Still can not read the printing on your graphs and no Vertical scale units legend

    Reply

  29. jefe November 4, 2016

    Still can not read the printing on your graphs and no Vertical scale units legend

    Reply

  30. Bob November 5, 2016

    Made a super nice profit on sco!Tanks for your help!

    Reply

  31. Bob November 5, 2016

    Made a super nice profit on sco!Tanks for your help!

    Reply

  32. gordon November 5, 2016

    Its amazing how frackers and oil drillers in the US can declare “bankruptcy” and still keep on producing. Years ago bankruptcy mean you were Kaput finished done but today its only a meaningless phrase because the government wants the production of US oil to go unabated irregardless of their financial position. Laws are equally meaningless. Its a strange strange world Master Jack.

    Reply

    • john November 7, 2016

      hey Gordon, there are debtors to be paid. you know, the capital structure? its not just equity. oil is pumped until debt is paid or the oil is gone. Saudis don’t know this either. Oops!

      Reply

  33. gordon November 5, 2016

    Its amazing how frackers and oil drillers in the US can declare “bankruptcy” and still keep on producing. Years ago bankruptcy mean you were Kaput finished done but today its only a meaningless phrase because the government wants the production of US oil to go unabated irregardless of their financial position. Laws are equally meaningless. Its a strange strange world Master Jack.

    Reply

    • john November 7, 2016

      hey Gordon, there are debtors to be paid. you know, the capital structure? its not just equity. oil is pumped until debt is paid or the oil is gone. Saudis don’t know this either. Oops!

      Reply

  34. John Mitcalfe November 5, 2016

    An erudite report and summary of the Oil Market,

    Reply

  35. Ashu juneja November 5, 2016

    I believe in your common sense approach.
    Thanks.
    Sir please predict if there is no election Obama retains ,then what?

    Reply

  36. Ashu juneja November 5, 2016

    I believe in your common sense approach.
    Thanks.
    Sir please predict if there is no election Obama retains ,then what?

    Reply

  37. Trav November 5, 2016

    Larry,
    How will the lower oil prices affect gold prices? Thanks

    Reply

  38. Trav November 5, 2016

    Larry,
    How will the lower oil prices affect gold prices? Thanks

    Reply

  39. $1,000 gold November 5, 2016

    the feds gonna raise rates in december. bet your life on it. more rate hikes to follow next year. slowly but surely, this means a stronger dollar. contrary to what the experts say, this could be good for emerging markets. won’t a stronger dollar help companies like toyota? i’ll be watching the VWO to see how it’s affected by the next rate hike before i buy. rate hikes are intended to slow down america at the expense of helping our trading partners overseas. here we go.

    Reply

    • $1,000 gold November 5, 2016

      also, gold responds favorably to easing by the fed. the feds going to tighten. i just don’t see gold bull resuming until the fed is done tightening and becomes accomodative again, like during our next recession.

      Reply

  40. $1,000 gold November 5, 2016

    the feds gonna raise rates in december. bet your life on it. more rate hikes to follow next year. slowly but surely, this means a stronger dollar. contrary to what the experts say, this could be good for emerging markets. won’t a stronger dollar help companies like toyota? i’ll be watching the VWO to see how it’s affected by the next rate hike before i buy. rate hikes are intended to slow down america at the expense of helping our trading partners overseas. here we go.

    Reply

    • $1,000 gold November 5, 2016

      also, gold responds favorably to easing by the fed. the feds going to tighten. i just don’t see gold bull resuming until the fed is done tightening and becomes accomodative again, like during our next recession.

      Reply

  41. Sham November 5, 2016

    What is the way to SHORT oil ?

    Reply

  42. dennis November 6, 2016

    i agree with you. You are very educational in your analysis and predictions. Thank you.

    Reply

  43. dennis November 6, 2016

    i agree with you. You are very educational in your analysis and predictions. Thank you.

    Reply

  44. steve lipsit November 6, 2016

    hi larry: i’m a new subscriber and have found your writings to be very incisive.you have written both of a Market Tsumani and the dow 31000. what is the timing you foresee for both events? will tsunami supercede dow 31000, or will these occur in reverse. i look forward for your clarifications. thanks, steve lipsit
    .

    Reply

  45. steve lipsit November 6, 2016

    hi larry: i’m a new subscriber and have found your writings to be very incisive.you have written both of a Market Tsumani and the dow 31000. what is the timing you foresee for both events? will tsunami supercede dow 31000, or will these occur in reverse. i look forward for your clarifications. thanks, steve lipsit
    .

    Reply

  46. Bob November 6, 2016

    Larry:

    It would certainly be helpful to me, and I believe others, if your graphs came with vertical scales as well as horizontal. Thanks.

    Reply

  47. Christopher Jones November 7, 2016

    Larry…….. what happened to your gold prediction.
    I followed your advice and bought gold mining shares, gold tumbled today and I’m losing my shirt . I have yet to get out and stressed out regarding the elections. A Clinton win will mean a crash for gold.. It will also mean a big jump in the stock market which in turn will be another crash for gold if the DOW keeps going up. I figured I would follow your advice and it gold did pan out I would subscribe to your news letter. What happened Larry? Should I now get out of gold and follow Dents recommendation.???
    Not a happy camper.

    Reply

  48. Jerry November 8, 2016

    A way to short oil is to buy SCO.

    Reply

  49. Jerry November 8, 2016

    A way to short oil is to buy SCO.

    Reply

  50. Eugene Herskovits November 8, 2016

    How is raise in interest rates affect gold rice ??

    Reply

  51. Eugene Herskovits November 8, 2016

    How is raise in interest rates affect gold rice ??

    Reply

  52. Fritz November 10, 2016

    I asked before & did not get an answer. What ?? happens when the stock market and brokerages crash ? ? ?

    Reply

  53. Fritz November 10, 2016

    I asked before & did not get an answer. What ?? happens when the stock market and brokerages crash ? ? ?

    Reply

  54. Marina November 11, 2016

    Hello Larry,
    What are the put options on descending crude oil? Please advice.

    Reply