4 Forces That Could Blast Oil Higher
Crude oil made more money for members of my trading service, Resource Trader, than anything else in 2022.
I think it's going to keep making them money — potentially a lot more — in 2023.
Demand remains strong. Supply is tight.
Here are four reasons why I see oil pushing higher into 2023 …
Reason No. 1: OPEC+ Production Cuts
OPEC+ just cut its forecast for 2022 oil demand growth for the fifth time since April, blaming the potential for a global recession.
Does that sound bearish? It's not.
It's likely a prelude to the cartel and its allies making ANOTHER cut, on top of the Oct. 5announcement of a 2 million barrels-per-day cut to their collective production target.
That last cut should translate into an actual reduction of 900,000 bpd because many OPEC+ members hit the limit of their production capacity a long time ago.
That's one of the reasons I'm bullish: OPEC+ doesn't have much spare capacity to bring on. That's why it's so eager to cut.
I'll get to my other forces that could blast oil higher in a bit.
First, let's look at a weekly chart of West Texas Intermediate, the U.S. crude oil benchmark, which recently found a bottom:
You can see oil is banging its head on resistance, which was supported in the early part of this year. If it can push above that resistance, the next stop should be the highs it hit earlier in 20022.
And I believe we could see $140–$150 oil sometime in 2023.
The move could come sooner than later. Here are three reasons why …
Reason No. 2: China
China's totalitarian government is making more noise about relaxing its strict COVID-19 rules.
That nation's brutal lockdowns and their impact on the economy are weighing on global oil demand.
In fact, China's oil industry is already gearing up for reopening. At least three Chinese state oil refineries and a massive, privately run refiner increased their production runs by up to 10% in October from September.
And China's crude oil demand is rebounding sharply.
U.S. crude arriving in China in October is expected to hit the highest since December 2020 at 450,000 bpd, up from about 300,000 bpd in the August–September period. Middle East shipments to China are also rising.
Just wait until China really opens. Its oil demand should shift into even higher gear.
Reason No. 3: Lack of Investment
Before 2016, global oil and gas investments topped $500 billion a year.
It's been on a downhill slide ever since and is now about half its peak. At some point, this is going to impact global oil production.
The world is rapidly adopting renewable energy and electric vehicles, and significant investment dollars are being channeled in those directions.
For oil, that shortage of investment results in less supply. And less supply is resolved by higher prices.
In fact, in its recent oil outlook, OPEC said the global oil sector needs at least $500 billion a year in investment through 2045 in every stage of the oil production process.
We're not seeing that.
Reason No. 4: Refilling the SPR
There's another source of demand coming soon. President Biden tapped America's Strategic Petroleum Reserve to the tune of 180 million barrels to pump up supply when prices soared this summer.
That's the lowest level in more than 40 years. He also promised to replace that oil over time, as oil prices dip. That will probably start in 2023.
I can't imagine a Republican-controlled House of Representatives, which we're likely to have, letting Biden get away with not refilling the SPR.
To these forces, you can add the fact that we could see trouble break out anytime in any of the likely oil-rich hot spots like Libya, Nigeria, Iran and more. A disruption in any of these markets could put even more pressure on a tightly squeezed global oil supply.
Take it all together, and the odds favor oil breaking out for a bull run.
In fact, we just saw oil break out on Friday. Now, we wait for follow-through.
Let's look at a weekly chart of the Energy Select Sector SPDR Fund (XLE), a basket of leading oil and gas stocks.
That kind of breakout gives us an immediate target of $111. However, as I said, I think a run to $150 is on the table next year. That's a 60% move from recent prices.
And individual stocks could make much larger percentage moves in anticipation of oil's bull run.
Members of my other trading service, Wealth Megatrends, have also made a lot of money on oil and gas stocks this year. In fact, in one position alone, they're sitting on a nearly 50% open gain.
I expect they'll make even more next year.
Part of the reason why is because Wall Street is so busy talking about a recession that it can't see the oil rally right in front of its face.
The fat cats will ignore this for too long, allowing us to reap potentially extraordinary returns.
All the best,