Analyst Larry Edelson explains his bearish case on crude oil, which includes a huge downside forecast for next year.
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 relevance and engineer higher crude oil prices.
For 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.
Record 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.
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.
The United States Oil Fund LP ETF (NYSE:USO) closed at $9.98 per share on Friday, down $0.10 (-0.99%). The largest ETF tied to WTI crude oil prices has fallen 9.27% year-to-date.
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