How to Profit from the "Stupidest" Move OPEC Has Ever Made

On the 74th anniversary of the attack on Pearl Harbor, another battle in the global oil war is heating up…

Oil is deep in the red right now. It cratered more than 6% yesterday afternoon alone. In fact, oil hasn’t seen prices this low since the Great Recession. I stepped into the way-back machine yesterday afternoon and found the 10-year lows for you: Feb. 12, 2009. That’s the day light crude’s spot price hit a low of $33.55. And if Monday’s action is any indication, we could visit this mark once again soon enough.

How Low Can We Go?

Back on the front lines of the oil wars, OPEC ain’t blinking just yet…

“The decision by the Organization of the Petroleum Exporting Countries to keep pumping at current production levels is either the ‘stupidest’ possible move the cartel could make or the ‘right call’ to defend market share from U.S. shale producers,” a handful of analysts told MarketWatch.

Most of the talking heads these days make it seem like OPEC has options in today’s oil market. Newsflash: They don’t. Once the U.S. shale boom made obvious the fact that the globe is NOT running out of black gold, it fundamentally changed the oil game.

“Oil sheiks don’t hold all the trump cards. Sure, they have the option to cut production. But when you actually look at the facts surrounding a production cut decision, you’d quickly realize that the amount of oil that OPEC would conceivably cut, wouldn’t rally oil prices much at all,” explains our resource maven Matt Insley. “It’s not like a few million barrels per day off the quota is going to get oil prices back to $80 – that simply won’t happen.”

The real trump card is the fact that the U.S. has a hell of a lot of economic oil at $50-60 per barrel. So we won’t see the price of oil rally much higher than that for any extended period of time, Matt says. Simply put, once the price of oil heads above $60, the U.S. shale spigots open up.

Back in 2005 the only spigots available were in Saudi Arabia.  Whelp, sorry sheiks, today there’s a lot more black goo on the market. And your monopoly days are over.

So the Saudis can either cut crude and give up market share to the U.S., or keep pumping and try to make it up on volume. They’ve chosen the latter and will probably continue to do so.

OPEC keeps pumping—and prices keep dropping. So anyone who tries to tell you that oil will somehow magically ramp back up to $100 a barrel again in 2016 is either yanking your chain or fit for an asylum…

“I’ve said before that I wouldn’t be surprised to see oil prices that start with a ‘3’ in 2016,” Matt concludes. “Well it looks like that forecast came early! Fact is, depending on how much crude oil hits the markets in the coming weeks, we may even see oil prices that start with a ‘2’ in 2016. And that’s not some doomsday scenario either.”

Low oil prices – get used to them.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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