Breaking Free: Fundamentals Behind Why Oil Prices Spiked Recently

I just completed a 5-straight hour satellite media tour where we connect with TV and radio stations across the country – back to back – doing interviews about oil and gas.   Even after doing this four years now, I’m still amazed at two things:  How interested people are in the dynamics affecting oil and gas and second, how little most people really understand.

The hot topic was obviously where oil prices are going and why.  We have recently not only watched a bottom form and successfully test multiple times, now we’re seeing aggressive buying coming back into both West Texas Intermediate and Brent.  The paradigm has shifted and the fundamentals that drove prices to 6-year lows are now showing clear signs of reversing.

For one, U.S. production finally slowed the week ending March 27, the first time since January that domestic oil output dropped over the prior week.  We’ve been talking about this at length here on the blog, and in the media.  At some point, the natural declines of shale wells will kick in and as fewer rigs are drilling, eventually production has to ease.  One week is certainly not enough to establish a trend, but we know where we’re headed and traders are looking for any signs of supply balancing itself out.

There was also a draw-down of the swelling stockpile of light sweet crude in Cushing, Oklahoma.  Reports indicated 300,000 fewer barrels in Cushing for the week ending April 3, pointing to increasing domestic demand.  Refiners are buying stock to turn into unleaded gasoline, taking advantage of their wide margins to increase product ahead of the summer driving season.

Another relief-factor came when the Iranian nuclear talks extended into June.  The markets were well aware that Iran has 30-million barrels of oil floating on tankers that can quickly come to market.  With the extension, Iranian oil will either keep floating or a small amount may find its way to the black market.

Asian demand appears to also be ticking up.  Saudi Arabia raised its price to the Far East recently and refining margins are strong in China as well.  Couple that with a weaker dollar and it was a perfect storm to send oil higher.

It’s still to soon to know whether we transcend and hold $60 on Brent, the next critical technical resistance.  If we do, there’s no doubt this rally has legs.  If we don’t, it’s still possible, although less likely, we’ll re-test the low $40’s of just a few weeks ago.

As far as the general public’s knowledge of oil and gas, that’s why we do what we do at Breitling Energy.  Most people don’t understand that after 50 years of our best scientists working feverishly to develop alternative fuel sources, America gets a paltry 3-percent of its energy from wind and solar.  The best forecasts on the street say that number will triple to nearly ten percent….over the next 3 decades!  It’s simply not feasible to expect that we can replace fossil fuels any time soon as the primary source that fuels our modern lifestyle.

Not only that, leading analysts predict global demand will increase another 30-million barrels a day by 2040, leaving one asking where that oil will come from year after year.

Yet, the environmental and ant-fracking movements are incredibly well organized and well funded.  Using fear and trepidation, they employ a strategic fear-based message to demonize the very fossil fuels they couldn’t live without every day.

On the other hand, we promote a message of hope, encouragement and patriotism.  America first.  Independence from foreign oil.   A strong energy-based economy for our kids and grandkids.  That’ what fracking is really about.  And that’s why we go on television and write these blog posts – to spread the message that America can and will win this race and preserve the incredible life we’ve come to enjoy.

Now, the move I helped produce is available for purchase or digital download.  “Breaking Free” looks at energy production, and fracking, from a different perspective.  From a pro-American view, citing facts vs. fear.  It is available now on Amazon.com or iTunes.