Doha is doomed to end in failure.
The one exception is if — and this is a mighty big “IF” — each of the attending countries agrees to cut its oil output.
Not freeze. Not kick the can and decide later. And certainly not cheat on any agreed reduction in output. Of course, if by some miracle there is an agreement, let’s cross our fingers that OPEC members don’t treat any cut as a guideline, like they do their production quotas.
The posturing taking place now, well before the representatives sit down in Qatar, signals something else, something more disturbing: OPEC’s upcoming implosion.
I know that being a member of the oil cartel would imply a certain level of cooperation among members, but that is rarely the case.
In fact, if history has proved nothing else, it’s that OPEC members will readily take advantage of each other at the drop of a hat.
After all, it’s happened before…
Iran, Iran’s So Far Away
I know that my older readers remember the 1973 oil crisis, when signs reading “Sorry, No Gas” were commonplace and coming across something like this wasn’t too far-fetched:
But there’s something else you might have known — not all members joined in using crude oil as a weapon against the West.
Iran didn’t take part in the oil embargo; it took advantage of it.
Six months after the oil embargo was set in place, the price of crude oil soared from $3 a barrel to roughly $12 a barrel.
And while the rest of OPEC remained unified, Iranian oil exports to the United States surged higher.
Let me put a little more perspective on this…
In January of 1973, Iran exported 69,000 barrels of oil and petroleum products per day to the United States. By April of 2014, however, more than 600,000 barrels of Iranian crude was shipped to the U.S.
The amount of oil revenue the Shah of Iran generated was unprecedented.
Granted, we’re not exactly talking about another oil embargo right now. Still, if the rest of the world’s largest oil producers decide to cut, Iran’s greed will drive the country to pump as much oil as it possibly can.
What you’ll see is Iran putting more of its oil onto the market and stealing as much market share from the Saudis as it can get its hands on.
And if you’re asking how individual investors should be taking advantage of the internal bickering and backstabbing within OPEC, I offer you the two oil bets I’m making in 2016…
West Texas Forever
Siding with the Texas drillers while oil markets move away from a bottom is almost too easy of a wager to make.
Specifically, I’m referring to the Permian Basin. Not only are some of the most economical oil plays found in the Permian, but finding those solid companies at an extreme discount is too good to pass up.
And as a testament to the resilience of West Texas drillers, roughly 2 million barrels of oil per day are still being extracted from the Permian Basin. It was one of the few places — if not the only place — in the lower-48 states where production was steadily rising, despite the ultra-low price environment.
Yes, it’s incredibly difficult out there for companies in the E&P sector, and hardly a day goes by without a headline in the mainstream media showing the enormous debt that shale companies have had to take on to fund their drilling activities over the last several years.
However, that doesn’t mean there aren’t a few diamonds in the rough.
More importantly, it isn’t just the big names that you need to pay attention to, like Pioneer Natural Resources or even ExxonMobil.
As you can see below, shares of smaller independent drillers like Callon Petroleum have nearly doubled during the last four months:
Moreover, there’s more growth ahead for Callon in spite of the cheap oil prices.
Still, no matter how bullish you are on drillers in Texas and the rest of the tight oil plays in the lower-48 states, there’s one undeniable fact that you need to keep in mind — they’ll never fully satisfy the United States’ addiction to crude oil alone.
Well, it’s a good thing they don’t have to…
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Canadian Comeback
My second bet on oil this year may not be well received. That’s okay. A year from today, there’ll be some people that will ask themselves why they didn’t see this coming.
Although we’re still waiting for signs that the supply glut is easing, the one thing we can count on is the United States’ unnerving addiction to crude oil. Last year, the U.S. consumed an average of about 19.4 million barrels of crude oil and petroleum products.
That demand has remained steady for decades, too:
Click Image to Enlarge
No matter which direction the Doha meeting goes, the first country the U.S. will turn to for more oil is Canada.
Years ago, I told you that it was simply a matter of time before Canada is exporting more than 3 million barrels of oil to the United States on a daily basis.
That benchmark was reached more than four years ago.
The way things were headed, I mentioned that 4 million barrels per day wasn’t too far away.
Well, it turns out that it happened much sooner than most anticipated. In December of 2015, the U.S. imported that much oil from Canada.
Interestingly, however, I’m not ready to bet the house on Canadian drillers… not yet.
There’s a much more lucrative opportunity out there for any investor with the foresight to take advantage of it — one that we’re going to delve into in the weeks ahead.
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.
