There It Is: WTI With A "64-Handle" -- February 26, 2018 -- 11:33 A.M. Central Time.

Updates

Later, 1:07 p.m. Central Time: the Dow is now up 364 points. 

Later, 12:12 p.m. Central Time: holy mackerel, Batman, the Dow is now up 340 points. See this post for some misguided analysis.

Later, 12:05 p.m. Central Time: literally, less than five minutes after I posted the seven reasons why crude oil was going to go higher (in price), Mike Filloon says the same thing -- "oil prices are headed higher as we go into driving season."  Folks should remember that Bakken producers have said -- pretty much across the board -- that they are cash neutral at $45-WTI.

Oil prices have continued to head higher since June of last year when WTI dipped below $43/bbl. It is impossible to be certain as to the trajectory of oil, but there are a number of factors that could push oil higher. The recent pullback seems to be an opportunity going into what could be a very good driving season. We are bullish oil prices into the 2018 driving season. WTI could move as high as $75/bbl. 

World GDP growth is almost at 4%, the best since 2011. Expansion of trade has been seen across a number of developed countries. For the first time in quite a while, confidence is driving investment. The Philly Fed manufacturing capital expenditure outlook is near an all time high. Business investment is up 6.3% yoy in Q4, and we think this will accelerate in 2018.

The financial markets are in the best shape since the crisis, and the removal of overly restrictive regulations are positive. Labor markets continue to tighten across much of the developed world. We think inflationary pressures will be held in check, and rates will not increase at current estimates.

We think pricing pressures are a 2019 event, followed by wage increases. Commodities are cheap in comparison to equities, and this should continue as long as policy remains loose. Financial markets have decent liquidity, and this is a positive for oil.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship-related decisions based on what you read here or what you think you may have read here.

Original Post

 

Lots of reasons for $64-oil, of course, but headline news suggests it is due to:

• Libya; and, 
• Venezuela

Nope and nope. It's due to speculators. LOL. Other reasons:

• cheap dollar
• inventories at Cushing plummeting
• Saudi says it will keep cuts in place despite better prices
• experts say we are now supply/demand balanced
• US driving season is almost here
• US economy firing on all cylinders
• Uber, Lyft pulling folks from public transportation 
• 10-year Treasury yield lowest since February 14, 2018 (around 2.8% and even if the yield hits 3%, economists and other experts discount the effect a 3%+ yield on ten-year T-bills will have on the economy)

Having said that, the US has placed new sanctions on Venezuela and the Venezuelan president has said, in the past, he would ban his country's crude oil exports to the US if more sanctions were imposed.

My hunch: Venezuela will export oil to Mexico (rather than the US), and Mexico will export that oil to the US for refining into gasoline, which Mexico will then import back into their own country. Think about it this way: Boston imported natural gas from Russia (despite sanctions) when the Marcellus/Utica were located in Beantown's backyard.

By the way, US refiners need heavy oil; that's why the Keystone XL from Canada (home of heavy oil/oil sands) was so important. With the loss of heavy oil from Canada and Mexico and Venezuela, the US refiners are in deep doo-doo. LOL. Nope. But we're going to hear more stories of Canadian CBR. 

No, I am not making that up. See this post from December 31, 2016:

The original story was at this post.

Now, additional data is provided, from Platts. Data points:

• Mexico's record-low refiner production and growing consumer demand: pushed US gasoline exports there to a new high in October
• gasoline exports to Mexico climbed 1.86 million bbls to 12.08 million bbls in October
• the previous peak was 11.42 million bbls in December, 2010
• Mexico is by far the largest importer of US gasoline; take 46% of the 177 million bbls of finished gasoline exported by the US in October, 2016
• exports push the price of gasoline higher
• outright price of Gulf Coast pipeline-delivered conventional gasoline, $1.71, highest price since August 18, 2015
• prime reason for increased exports to Mexico: chronic underinvestment in downstream investments over the years
• Mexico's refined product production is at its lowest point since Pemex started tracking data in 1995
• this, despite domestic sales climbing to a record high
• Mexico is expanding its main import terminal, the port of Tuxpan on Mexico's east coast

This won't be the top energy story of 2016, and it may not even make the top ten list, but it's a huge story and it's going to get much bigger.  

What makes this incredibly important and timely is this: in July, just a few months from now, Mexico will elect a socialist who has said his top energy priority is to re-look at all energy "dealings" between the US and his country. Andres Manuel Lopez Obrador (who looks a bit like an older Jamie Dimon) wants to turn his country into a refining country, instead of simply producing oil.

Good luck. My hunch: Obrador is sending his energy minister to Venezuela to see how to do things the "left" way.

As I've said earlier: after the July, 2018, Mexican presidential elections, California will be begging to have the wall built.

By the way, the market is up almost 300 points. See this post for a bit of misguided analysis.