I hate it when oil prices crash.
It’s happened twice in the last decade.
The last two major crashes began in the summer of 2008, when WTI prices soared to $146 per barrel, and then again in the summer of 2014, when prices climbed back over $100 per barrel.
So when the market watched crude oil prices experience one of their biggest drops in over three years, the panic set in and the bears took control of the wheel.
Over the last seven weeks, WTI crude prices have fallen more than 34%.
Well, dear reader, we’re approaching the limbo stick once again… how low can oil go?
My question to you is: Are you going to capitalize on what’s going to happen next?
Profit from the Shale Band
Every investor out there who has made or lost money on oil in the last decade has heard of the shale boom.
Unfortunately, few have heard of the shale band.
Don’t beat yourself up if you haven’t, because you’re about to see it at work once again. And if you’re one of the few who recognize what’s about to happen, then you’ll immediately know why NOW is the time to buy oil stocks.
It’s a simple concept, really.
The shale band is simply a price range in which shale drillers are profitable.
The idea is that when crude prices drop to around, say, $40–$45 per barrel, companies will ratchet down their drilling activity, and when prices rise over $65 per barrel, they’ll ramp up output.
When you run too far to one side of the band, drillers become predictable.
That makes sense, doesn’t it?
Prices dip too low, and the rig count falls as companies sideline their crews and equipment and wait for more profitable conditions. The consequences of this lead to a dearth in new exploration, as capital spending drops like a stone and the supply/demand dynamic goes askew.
In 2016, roughly two years into the last major bear market, a few Big Oil players like Chevron and ConocoPhillips slashed their budgets by a quarter. Globally speaking, oil and gas spending plummeted to six-year lows of $522 billion.
Now flip sides…
As you and I both know full well, WTI prices crashed to around $26 per barrel back in February 2016.
It made oil stocks a screaming buy at the time.
We were at the far end of the shale band, and oil was about to come back in a major way.
Since hitting that bottom, oil roared back to life over the next two years, reaching above $75 per barrel until the most recent volatility struck.
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Not surprisingly, oil companies started shelling out cash once again after prices bottomed in 2016.
Last year, the upstream sector in North America boosted spending by nearly 40%.
Welcome to the shale band opportunity.
And it begs the question of how low oil prices will go.
How Low Can We Go?
Simply put, oil is incredibly cheap.
Yet the situation is radically different than the previous two crashes.
Back in 2008, the looming threat of tight oil development in the Lower 48 was enough to send prices crashing. Between 2008 and 2014, our output soared 75% higher as more tight oil supply hit the market.
Since 2014, our output has jumped another 30%, reaching a new record of 11.4 million barrels per day.
Despite the rosy forecasts, we can’t possibly expect output to grow at those rates going forward. In fact, the EIA projects U.S. production will grow around one million barrels per day next year. No matter how bullish we are on U.S. oil, the idea of us increasing output to 20 million barrels per day is nothing short of a pipe dream.
Ah, but there’s a small catch in all this…
Unlike the previous crashes, when demand took a nosedive right alongside prices, global demand remains strong.
China’s crude oil imports reached a new record of 40.8 million tonnes last month.
India’s oil imports rose to around 21 million tonnes in October, which is a seven-year high.
My point, dear reader, is that oil prices will inevitably rise from this level as prices swing back toward the other end of the shale band.
And you need to prepare for the next run higher.
Stay tuned.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
