Note from Keith Kohl - April 10

[dan_s]

Buy Oil NOW, Thank Me Later
Keith Kohl | Apr 10, 2025
I was wrong about oil… almost.

I believed — and still do, by the way — that oil would never fall below $50 per barrel. It wasn’t a particularly bold position, either; it still isn’t.

So, you can imagine the fear and anxiety that had built up as WTI prices, which had been desperately trying to find support above $70 per barrel less than two weeks ago, suddenly plummeted.

That unease grew further as oil prices fell. We watched as oil dropped $10 per barrel within 48 hours, and then it happened — WTI prices sank below $60 per barrel, hitting a low of $55.12 per barrel yesterday.

But there was only one thing running through my mind the moment as crude prices tumbled so low: We’re going to make a killing buying oil at this level.

Here’s why…

Buy Oil Now, Thank Me Later

The moment that President Trump announced a 90-day pause on tariffs on everyone except China, one of the biggest benefactors from this decision was the oil sector.

Prices rebounded more than 4% almost immediately. In fact, WTI crude is making a run for $63 per barrel as I write this now.

And you know what? Oil is STILL incredibly cheap at this level.

You see, Trump has a bit of a problem; a catch-22, if you will.

Despite his stated desire for oil prices to fall to $50 per barrel, I can only hope that his advisors are telling him the catastrophic effects this price level would have on U.S. domestic production.

As I’ve mentioned before, $50 oil would cause every E&P player in the U.S. oil patch to radically cut their capital spending. Drilling activity would grind to a standstill. Then, slowly but inevitably, our domestic production would decline.

Of course, the only winner in this scenario is OPEC+, who would gladly pick up any lost market share as the group continues unwinding their output cuts as U.S. production growth dries up in 2025.

“So why is oil still a huge buying opportunity even after yesterday’s pause on tariffs to all but China,” you ask?

Well, that’s easy to answer: Because even at $60 per barrel U.S. oil production growth is in serious jeopardy.

This isn’t speculation, dear reader, it’s coming straight from the biggest oil-producing region in the United States. At the end of March, the Dallas Fed released an energy survey from 130 firms (88 of which were in the E&P sector) that painted a rather horrifying picture of U.S. energy security if oil prices remained in the $60/bbl range.

As I told you at the time, one of the most alarming parts of this survey was the WTI price necessary for them to profitably drill new wells.

In other words, the longer crude prices remain this low, the tighter global supply growth becomes further down the road.

MY TAKE: Due to higher steel prices, the average oil price needed in each of the U.S. major oil basins in over $60 outside of the Tier One core areas and we are running of Tier One drilling locations. The "Cheap Oil" has been harvested.

Keep in mind that this doesn’t even take into account the concerns over the quality of those new wells, or the potential geopolitical volatility that will arise when President Trump exerts more pressure on Iran and Venezuela’s oil exports to bring them to heel.

Nor does this account for the fact that we’re getting ever closer to the 2025 summer driving season, when demand peaks for the year.

Meanwhile, U.S. oil demand rose above 21 million barrels per day last year, its highest levels since 2019, and global demand hit an all-time record of 103.79 million barrels per day last summer.
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Oil Price volatility will continue, but lower for longer oil prices are unlikely because "Drill Baby Drill" ain't happening until WTI is firmly over $75/bbl.