|Dow||+17.60 to 17,383.84|
|S&P 500||-5.71 to 2,012.10|
|Nasdaq||-15.27 to 4,623.64|
|10-YR Yield||-0.006 to 2.342%|
|Gold||-$1.80 to $1,168|
|Crude Oil||-$1.61 to $77.17|
An oil war is breaking out!
I’m not talking about an old-school, Arab oil embargo-type battle like we saw in the 1970s. Nor am I referring to an actual shooting war, beyond the one already underway between ISIS, regional militaries, and U.S. drones and warplanes.
I’m talking about an economic oil war, one in which Saudi Arabia just launched a massive salvo against the U.S. The largest oil producer in OPEC cut the price of oil exported here, while simultaneously raising the price of oil sold to Asia and other regions.
Some officials deny it. But many analysts believe that the Saudis did so to target our domestic producers. Why? As I’ve said repeatedly, we are using American know-how, innovation, and investment to dramatically boost our country’s output of crude oil, natural gas, and natural gas liquids. That has led to a boom in domestic energy production, storage, transportation, processing, refining and export.
|Yesterday, Saudi Arabia surprised oil markets by cutting its prices to the U.S. market while simultaneously hiking them in Asia.|
But speculation is rife that OPEC in general, and the Saudis in particular, are increasingly worried about that. So they’re trying to undercut our producers and maintain market share — market share that has been decreasing for the better part of the past year or two!
Just consider: Saudi oil accounted for only 4.6 percent of our energy consumption in August, down from 7 percent last summer. We imported just 894,000 barrels per day (BPD) of their oil in August, down from around 1.4 million in early 2014. That’s because we don’t have to bring in as much foreign oil and gas now that we’re producing so much more ourselves!
So where do we go from here?
Crude oil prices have tumbled in response to the Saudi move, and the general weakening in foreign economies. U.S. futures slumped to less than $76 a barrel earlier today, compared with around $108 a barrel this spring. That’s the lowest since mid-2011.
But frankly, I believe the Saudis are fighting a losing battle. U.S. oil production topped out at 9.6 million BPD back in 1970, before plunging all the way to around 5 million BPD in 2008. That long-term decline kept us hooked on supplies of energy from foreign countries, dictators, and oligarchs who generally didn’t like us very much, if at all.
Now we’re on track to produce more than 9 million BPD again, and we’re becoming a much bigger global energy market supplier and player. I believe the only thing that could really derail that, and for only a limited period of time, would be an utter collapse in oil prices.
Yet there’s no way the Saudis or anyone else in OPEC can engineer that kind of decline without shooting themselves in the foot!
|“I wouldn’t panic if I were holding U.S. energy stocks.”|
Those countries NEED stable and/or higher prices to balance their budgets, support needed spending on military and domestic programs, and prevent unrest from increasing. So I think they will lose any short-term price war with U.S. producers, and it won’t take long for that to happen.
Bottom line: I wouldn’t panic if I were holding U.S. energy stocks. This multi-year trend toward increased American energy independence isn’t going away.
What do you think? Who holds the cards here: The Saudis or us? How should the U.S. respond, if at all? Should we cut back on military or financial assistance if the Saudis try to stick it to our domestic energy producers? Don’t wait — jump over to the Money and Markets comment section and let me know your thoughts!
|Our Readers Speak|
Mark’s column on space travel provoked some great discussion on the website yesterday.
Reader Axel K. said: “The present agonizing about the two commercial space-related disasters is totally misplaced. Whether run by NASA or commercially, rockets and space travel have known dangers. Accidents and disasters happen; this is all still leading-edge technology.
“The only difference between the accidents experienced by NASA versus those experienced by commercial operations like Orbital Sciences and Virgin Galactic is that after a NASA issue, some people scream about governmental inefficiencies whereas with a commercial operation that company’s stock takes a hit. I find both to be overreactions.”
Reader Mark added the following observation: “My main concern with Government, be it NASA or any other agency, is cost control. Commercial entities must make a profit where NASA does not.
“Arguably space travel for any reason with current technology is costly and dangerous but without the failures, there can be no progress. For the time being the government is footing the bill to fund the commercial companies that will eventually become cost effective, safe, and reliable.”
Personally, I hope that we never stop investing as a country (with government or private dollars) in space travel and off-world exploration. Humanity is at its best when it dares to dream big.
Of course, some of the world’s monetary policies look to me like they were dreamed up by extraterrestrials. And many of you agree!
Reader Louis J. said the following in response to my recent column on the Bank of Japan: “Here we go. Another central bank buying up all the country’s assets with the people’s own money. How clever of them — and how stupid are we that we allow this to happen?”
And Reader Anthony G. added: “If a central bank printing press alone could produce prosperity there would be no Third World.”
Want to add your two cents to these or other discussions? You probably know where to go by now, but just in case, here’s the link!
|Other Developments of the Day|
The midterm elections are underway around the country today. It doesn’t appear the balance of power will shift in the House of Representatives. But it’s possible Republicans will gain control of the Senate, according to the Washington Post’s analysis of the election math and recent polling. We shall see.
As for states, a total of 36 are holding gubernatorial elections. Those include Florida, Georgia, Connecticut and Colorado. This breakdown from Yahoo has much more information on what factors will be influencing the various elections.
This just in: Europe admits its economy stinks, just as I’ve been saying for a long time! Specifically, the European Commission said 2014 GDP growth will come in at a paltry 0.8 percent for the 18-nation euro zone. That was down from a 1.2 percent forecast issued a few months ago. The euro currency breached the 1.25 level to the downside this week, falling to a 26-month low.
On the corporate front, shares of wireless provider Sprint (S, Weiss Ratings: D) got pasted earlier today after warning of weaker EBITDA and subscriber trends. But Alibaba Group Holding Ltd (BABA, Weiss Ratings: Unrated) — about which I’ve written recently — hit another new high after its first post-IPO earnings report.
Until next time,
P.S. With everything that’s happening and about to happen today, Martin’s new video is EXTREMELY urgent! It’s online right now. Two examples of what he shows you are: Why a strong offense is your only real defense against economic dangers now and with interest rates at practically zero, how you can build your nest egg for retirement …
It will start playing on your screen immediately when you click here.