United States Oil (USO) DOI now reports that domestic crude production could surge to 14 MMbpd by 2020

United States Oil (USO) DOI now reports that domestic crude production could surge to 14 MMbpd by 2020

United States Oil (USO) DOI now reports that domestic crude production could surge to 14 MMbpd by 2020

U.S. crude oil exports have soared due to a combination of:

  • rising domestic crude oil production
  • high but flat domestic demand
  • a law change in December 2015 that allowed sales beyond just neighbor Canada

Since the shale revolution started in 2008, U.S. crude production has increased almost 125 percent to around 11.2 million barrels per day (MMbpd). Yet, this light, tight oil boom has not been a great match for the massive 18.6 MMbpd U.S. refining system. U.S. refineries are generally configured to process the heavier crudes imported from longtime suppliers Canada, Mexico and Venezuela.

So today, 65 percent of U.S. crude oil production has a very high 40 degree API gravity or above. This has left huge amounts of surplus shale oil available for export. This mismatch between what the U.S. is producing and what it is typically built to process also explains why the country still imports a significant amount of oil, taking in an average of 8 MMbpd in late 2018.

Since January 2018, higher prices have helped increase U.S. crude production nearly 20 percent. U.S. crude exports therefore more than doubled year-over-year to average 1.9 MMbpd in 2018. The rise in production, augmented by takeaway constraints in West Texas that have depressed local prices, has offered a key advantage for U.S. exporters by keeping WTI prices in check. In contrast, mounting global demand and geopolitical concerns (e.g., U.S. sanctions returning to Iran) have pressured Brent, the international benchmark, to the upside.

Rising from nothing prior to 2016 to 510,000 bpd in June 2018, China has accounted for 20 percent of U.S. crude exports in recent years. But a U.S-China trade war that officially kicked off that very month has China implementing a 25 percent tariff on U.S. crude. By August, purchases from the U.S. had dropped to zero.

For China, similar quality West African oil is a practical replacement for American crude. But for the United States, an alternative market for China is a much harder find. India could help but its oil market is just a third the size of China’s, and India has bought just 10 percent of the U.S. crude that China has.

Looking forward, if China continues to reduce purchases from the United States, it would increasingly put downward pressure on WTI and help extend the discount to Brent. In any event, EIA models a $3 to $5 premium for Brent for years to come, a large enough gap where U.S. exporters can still make money. With flat demand freeing up even more for export, the U.S. DOI now reports that domestic crude production could surge to 14 MMbpd by 2020.

The U.S. Gulf Coast ports, however, need to be expanded and deepened to fully load the Very Large Crude Carriers (VLCC), some of which can hold over 3 MMbpd. Currently, there is just one port in the region that can carry a VLCC holding 2 MMbpd. Overall, U.S. crude exports could reach 5 MMbpd over the next five years.

U.S. policy wise, American consumers should realize that the capacity to export is a good thing. Exports encourage more production in times of flat demand to keep our own prices low. Without the export option, many in the U.S. oil industry could be forced out, and imports would play a larger role. And if more electric cars could eventually lower U.S. oil demand in a significant way, even more crude would be allowed to leave the country.

Globally, U.S. oil exports have continued to change the dynamics of the international oil market, helping to weaken OPEC’s grip on prices. More U.S. shale will help buyers further diversify supply sources to enhance their own oil security. Indeed, a U.S.-China trade deal is expected soon.

Overall, the bias in prices is: Downwards.

The projected upper bound is: 11.93.

The projected lower bound is: 10.03.

The projected closing price is: 10.98.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 8 white candles and 2 black candles for a net of 6 white candles. During the past 50 bars, there have been 20 white candles and 29 black candles for a net of 9 black candles.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 80.5369. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 3 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 55.98. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 15 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 70. This is not a topping or bottoming area. The last signal was a sell 3 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 12 period(s) ago.

Rex Takasugi – TD Profile

UNTD ST OIL FUND closed down -0.030 at 11.030. Volume was 18% above average (neutral) and Bollinger Bands were 5% wider than normal.

Open High Low Close Volume___
10.880 11.100 10.770 11.030 35,852,764

Technical Outlook
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 10.78 10.99 13.41
Volatility: 39 56 39
Volume: 32,288,036 37,110,388 24,646,730

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

UNTD ST OIL FUND is currently 17.8% below its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect volume flowing into and out of USO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on USO and have had this outlook for the last 7 periods.


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