Why WTI oil price won't stay in the $50s for long -May 6

[dan_s]

Keith Kohl | May 05, 2025

Every hour that oil stays below $60 per barrel, my excitement goes higher, and I’ll even show you the first oil stock I’m buying whenever prices weaken like this.

But I’m not telling you anything you don’t already know, am I? The veteran members of our investment community here can see that oil is a screaming buy at this level, especially when we’re just about three weeks away from Memorial Day — the official start of the summer driving season.

If we had to sum up all the weakness we’ve seen in the oil market recently, it could come down to this: Speculation.

Speculation is what’s driving down prices every time we see WTI start to march higher; gossip and conjecture is what’s fueling the fear in the hearts of investors. We’re living in a time when unnamed sources from Reuters suggesting that the Saudis are just fine with ultra-cheap crude prices can cause an abrupt sell-off.

Make no mistake, reader, this kind of supposition will come back to bite the bears later, because you can’t ignore the fundamentals forever. < The Big Three petroleum inventories in the U.S. are BELOW NORMAL for this time of year

However, it’s not enough for you to simply know that oil is incredibly cheap right now. You need to understand the why, too. Then you’ll be just as excited as I am right now that this buying window isn’t closed yet.

More importantly, you need to know what your next move should be.

Let the day traders keep their heads in the short game, because the best moves in oil won’t come over the course of a day or even a week.

And the sooner you realize that, the easier things will be as we move through 2025.

If we’re keeping score, perhaps the greatest speculation putting oil bulls in the trenches right now is over President Trump’s trade war. In that regard, we’ve heard it all over the last few weeks — from China’s demand collapsing to a never-ending tariff policy that will drag global economic growth through trade disruption and lower industrial output.

I told my readers before that I’m not buying it, at least not over the long run. The moment those trade deals start getting announced — and you can bet they will be at some point — we’ll immediately see crude prices strengthen as bearish demand forecasts are revised.

CNN reported last Friday that even China was assessing Trump’s trade proposals. Although nobody should expect China to be the first to start inking trade deals with President Trump, it’s only a matter of time.

One by one, these deals will start falling into place.

Look a little closer to home, and you’ll find the disconnect between media headlines and reality. No matter what you read, the cold, bitter truth is that U.S. petroleum demand isn’t as weak as you’re told.

Demand is slightly higher than it was a year ago, according to the numbers at the EIA; but it’s not the demand side of the equation that will push oil prices higher.

You see, the disconnect is even greater on the supply side of the equation.

Outside of the U.S., global oil inventories are not only tighter than most think, so is production.

Remember earlier this month when Venezuela shut out Chevron from exporting the country’s heavy crude oil? This action led to Venezuela’s output shrinking by 200,000 barrels per day last month. You know as well as I do that PDVSA is in no position to grow Venezuelan output on its own.

Couple this with President Trump’s renewed focus on stricter enforcement of Iranian sanctions. The President made it clear that anyone who buys Iranian petroleum will suffer the penalty of secondary sanction. Whether or not this is just a move to bring Iran to heel over its nuclear ambitions remains to be seen, think for a moment what kind of price spike we’ll see if the U.S. and Israel take this tense situation to the next level.

Still, these global catalysts are nothing compared to what’s happening right in our own backyard.

The First Oil Stock I’m Buying < Matador Resources (MTDR) was Keith's Top Pick in his newsletter last week.

One certainty in the U.S. oil patch today is that the game has changed dramatically from a decade ago, when the drilling frenzy was in full swing.

Time and again we’ve talked about oil companies becoming more efficient with each new well they drill.

I need to be clear here, there is NO output growth with oil in the $50s/bbl range.

What most people fail to realize, however, is that U.S. oil output is already flat!

The most recent Monthly Petroleum Report out of the EIA shows that our field production in February averaged 13.1 million barrels per day. < More than 350,000 bpd lower than U.S. oil production in December, 2024.
This monthly report gives us a much more accurate supply picture than the EIA’s weekly reports that are more guesswork than anything and based on its own forecasts rather than actual field data.

The thing is, that was the same amount of crude we were pumping out of the ground in January, and actually lower than the last three months in 2024. In fact, our crude output in February was almost 4% lower than it was the previous year — when our domestic oil production was at 13.6 million barrels per day!

Slowly but surely, cheap oil is killing our production growth at a time when our demand is set to surge higher during the summer months.

I’ll let you do the math on that one.

Unfortunately, finding the right oil stocks today isn't a matter of blindly throwing a dart against a wall and buying whatever it hits. You need to find those drillers (upstream oil & gas companies) that are successfully driving down both the time and costs of each well, and still growing production.

In the past, we’ve talked about some of the ways U.S. oil companies are doing just that.

Using completion techniques such as the zipper frac and simul-frac have helped the E&P sector boost output while spending less on each well… not familiar with these?

Alright, imagine you and your friend are opening a big bag of popcorn, but instead of just pulling the zipper all at once, you each take turns unzipping one little section at a time from different sides. First you pull your side, then your friend pulls theirs, back and forth, until the whole thing is open.

A zipper frac works kind of like that — but underground.

In oil and gas drilling, two wells are drilled close together. Instead of fracking one well all the way and then moving to the next, engineers alternate back and forth, fracking a little bit of one, then a little bit of the other.

This back-and-forth “unzipping” creates more pressure and cracks the rock better, kind of like shaking up a soda can before opening it — everything moves faster and more efficiently.

Meanwhile, simul-fracs are a little different. Picture yourself at a birthday party, and you and your friend are blowing up balloons at the same time — one on the left and one on the right. You’re racing to fill as many balloons as they can, side by side, at the same time, instead of taking turns.

A simul-frac works just like that — but instead of balloons, oil companies are pumping fluid into two wells at the same time to crack the rock underground and release oil and gas; it’s short for “simultaneous fracturing.”

So while a zipper frac is like taking turns unzipping a bag, a simul-frac is like both people unzipping at the same time from different sides — fast and all at once.

Now, these two completion techniques are being utilized throughout the very best oil plays in the U.S., including the Permian Basin, and each one can potentially shave hundreds of thousands of dollars off of well costs for the company.

These are the kind of efficiencies that’ll drive an oil stock’s profitability.

But what if I told you that there was a company that was utilizing a new drilling technique right now in the Permian Basin, one that was saving this drill up to $3 million per well, too. (MTDR)

Then what would you say if I told you that it was the ONLY Permian driller doing it?

Well, that would give this oil stock just enough of an edge to become one of the most profitable oil stocks in the world’s hottest oil region.

That’s an advantage no investor can ignore.
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At our Houston luncheon on May 21, the CEO of Kolibri Global Energy (KGEI) will tell us about how the Company's longer laterals, and new completion method has significantly increased Kolibri's production in Central Oklahoma. They will soon be completing a joint venture well with ExxonMobil (XOM) that could be a "Came Changer" for KGEI. Seating is limited to 40 for the May 21st luncheon, you must register on the EPG website to attend.

[allen46]

An alternative opinion:

Paul Sankey is one of the best, if not the best, oil analysts out there. He was one of the only analysts to call for negative WTI prices in 2020 and now thinks we are going into the $40's. His view is what Wall Street is listening to. I tend to think he will end up being correct.



https://www.cnbc.com/video/2025/05/05/oil-prices-will-drop-to-40-range-following-opec-decision-predicts-oil-analyst-paul-sankey.html