Here We Go Again: Prepare For A Pullback In Crude Prices!

You know the feeling.

When you’re about to check out of the grocery store and you’ve got five lines to pick from…

You take the shortest looking one.

But whammo! There’s a price check or receipt-roll change that turns your checkout lane into the slowest turtle in the race.

As the isle light blinks and other checkout lanes pass you by, you think to yourself “isn’t this my luck!”

Recently I had a “grocery line” moment. In early spring I saw the writing on the wall for a drop in global oil prices – a short checkout was in my future! But then the plight of the market quickly changed…

May 6th was when I gave you this strict warning: “Oil due for a major pullback.”

Oil prices were sitting at $95 a barrel, a lofty level considering the game-changing production numbers coming from U.S. shale and strong resurgence in Iraq.

Soon after that warning, flare-ups in the Middle East jockeyed the price of oil higher. Combined with that, American consumption numbers are up. Potential supply crunch from the Middle East and more demand from home? The rocket was lit with two matches. The price of oil shot over $108 a barrel recently.

That said, for the past two and a half months I’ve done nothing more than shake my head at the market action in crude. Anything in the triple digits seems a little high for my liking.

But the tide is about to ebb.

Middle East saber-rattling can only keep the price of oil elevated so long. And likewise the U.S. driving season is stretching out its arms before its winter nap.

Plus, the most important factor in the forecast for price of oil – shale supply – is till humming along. Indeed, the most recent data from the U.S. Energy Information Agency (EIA) paints a startling trend.

Since the last Short-Term Energy Outlook (January 2013), the EIA updated its forecast for world crude oil and liquid fuel production growth. And I’ll give you one guess as to which way they revised the numbers…

Yep, America’s energy boom is even bigger than we thought.

Whereas the previous data showed a severe pullback in liquid fuel growth for 2013 and 2014 – making it seem like this energy growth may be short-lived – the most recent data shows that this year and next are set to grow at a near-identical pace as last year.

In short, the EIA expects to see even more growth in U.S. crude oil production. Instead of an average of 7.9 million barrels per day in 2014, we’re now expected to see 8.2 mbpd on average. That’s a huge difference, especially considering it’s all growth.

So you see, just in the past six months (via the EIA’s numbers) the forecast for America’s energy boom has gained even more gusto.

That’s great for efficient producers in the hotspots – it means they are producing more oil and hopefully making a buck. It’s also great for the midstream guys that can move the oil – with more oil sloshing around share-price and dividends for players, like DCP Midstream (DPM), should be solid.

However, this bigtime increase in the forecasted supply of U.S. oil is NOT good for the price. From it’s current perch at $105 the price could still pullback $10-20 in a heartbeat (and especially before October.)

I’d steer clear of any marginal producers or bullish, price-based ETFs. The way the market works for crude, there’s bound to be a pullback in the price. Keep an eye on the ticker tape.

Keep your boots muddy,

Matt Insley
Original article posted on Daily Resource Hunter