Watch This Chart for a Breakout in Oil
A new record in auto sales?... Why sales surged in September... Don't get too bullish yet... U.S. crude exports are suddenly soaring... Watch this chart for a breakout in oil... Last call for tonight's exclusive event with Dr. Richard Smith...
U.S. auto sales surged higher in September...
According to the U.S. Bureau of Economic Analysis, total U.S. vehicles sales jumped to an annualized rate of 18.9 million. This was the first year-over-year gain in 2017, and a new post-crisis record...
But this wasn't a surprise. As regular Digest readers know, we expected to see a significant bump in sales as folks replaced the estimated 700,000-plus vehicles destroyed by Hurricanes Harvey and Irma.
And indeed, the data suggest that's exactly what happened. Virtually all the strength was centered in the hardest-hit areas. As financial-news network CNBC reported (emphasis added)...
New car sales in the Houston area, the fourth most populous in the United States, jumped 109% in the three weeks after Hurricane Harvey compared with the three weeks before the storm, according to car shopping website Edmunds.
Some industry consultants have estimated up to 500,000 cars were damaged or destroyed during Harvey.
But Jessica Caldwell, Edmunds executive director of industry analysis, said automakers were struggling to reduce inventories in the rest of the country.
We aren't getting bullish yet...
As we noted following the first of the hurricanes in August, history shows these events have no lasting effect on auto sales. Once damaged vehicles are replaced, the larger trend resumes.
So while we could see some continued strength as the rest of these vehicles are replaced, the big picture is unchanged: The auto industry is still suffering from a huge amount of overcapacity.
Expect more pain ahead.
America is suddenly exporting A LOT of oil...
U.S. crude-oil exports are soaring. As you can see in the following chart, they have more than doubled to nearly 2 million barrels per day ("bpd") over the past few weeks...
This is particularly impressive when you consider that the 40-year ban on U.S. oil exports was lifted less than two years ago.
As longtime readers know, the government finally repealed this law in December 2015. Prior to that, U.S. producers could export only to Canada, and rarely shipped more than 500,000 bpd.
This trend is likely being driven by the growing "spread" between the two major oil markets. U.S. oil (known as West Texas Intermediate crude oil, or "WTI") is trading at its biggest discount to Brent crude (the international benchmark) in more than two years. As the Financial Times reported...
On Wednesday Brent crude settled at $55.80 a barrel, while West Texas Intermediate crude was $49.98 a barrel.
Production cuts from OPEC, whose members are concentrated in the eastern hemisphere, has helped push up the Brent price. Hurricane Harvey also slowed US refineries' intake of domestic oil, causing supplies to build up and prices to fall.
"This is classic Oil Markets 101: too much crude in the US and too little crude elsewhere means that US prices weaken relative to global prices, and exports increase to address the imbalance," Société Générale said in a note.
The move may be overdone in the near term. U.S. refining activity is already recovering from Hurricane Harvey. But the larger trend could be just getting started...
If OPEC maintains its cuts – and the latest news suggests it's now looking to extend them through 2018 – while U.S. production rises, exports should continue to move higher.
'Oil's next leg higher could be starting'...
While the spread between Brent and WTI has been growing, both benchmarks have been moving higher over the past few months.
Since bottoming near $45 in July, both are trading back above $50 per barrel today. But if our colleague Ben Morris is correct, we could see an even bigger move higher shortly. As he explained in yesterday's edition of his DailyWealth Trader advisory...
The price of oil is up more than 80% since 2016... But the rally may not be over... If this time is anything like the past, the price could still run another 57% or more.
The proof is in the numbers... Following its four prior busts of 50% or more, oil soared an average of 327%. And even if you take out the biggest boom – a massive 733% rise – the average is still 191%.
Oil's most recent bust was its biggest in 30 years... a 77% drop from peak to trough. But oil hasn't seen anywhere near an "average" 191% gain off its February 2016 low... yet.
Of course, we can't know for certain...
As Ben noted, this time could be different. Many factors influence oil prices.
But history has shown that most of the time, "this time" isn't different. And there are fundamental reasons to believe prices could be headed higher still. More from Ben...
Since August 30, oil prices have jumped up 9%.
OPEC and Russia have cut back daily oil production by nearly 1.8 million barrels this year. And even though U.S. oil companies have increased production, these cuts have reduced supply.
Also, China's oil demand has picked up. Its crude oil inventories fell by 3.4% from July to August. And its total fuel stocks fell nearly 1%, to their lowest level since December 2016. China is a major global driver for growth. And it is primarily a crude-oil importer. So when its economy expands, it uses more oil and inventories fall.
As you can see below, these factors contributed to oil breaking out of its short-term downtrend...
This is a sign of strength for oil...
Fortunately, Ben says you don't need to make a guess or take a stance today...
We should soon get a clear signal – and a low-risk buying opportunity – if crude is indeed headed higher.
If we zoom out a little, we can see that oil is trading near a big resistance level...
The level to watch here is $53 per barrel. If oil can push through this multiyear downtrend and hold above the $53 level, oil's next leg higher may be starting.
This is it...
Tonight's big event with TradeStops founder Dr. Richard Smith begins less than one hour from now.
Richard will be sharing the same exciting research he presented to a standing-room-only crowd at our exclusive Stansberry Conference in Las Vegas last week, including...
- How you can easily triple the performance of the Stansberry Research recommendations you already own...
- How to safely position yourself to earn every penny possible from the final "inning" of this long bull market...
- And how to know without a doubt when it's finally time to head for the exits.
If you weren't able to see Richard live in Vegas last week, you don't want to miss this second chance opportunity. Again, it is absolutely free to attend.
Simply go to AskRichardSmith.com a few minutes before 7 p.m. Eastern time to join. (And if you're a little late, don't worry... We'll be offering a full replay immediately after.)
New 52-week highs (as of 10/4/17): AMETEK (AME), Allianz (AZSEY), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Bristol-Myers Squibb (BMY), Berkshire Hathaway (BRK-B), Morgan Stanley China A Share Fund (CAF), CBRE Group (CBG), Celgene (CELG), Global X China Financials Fund (CHIX), iShares MSCI Japan Fund (EWJ), iShares China Large-Cap Fund (FXI), Huntington Ingalls Industries (HII), iShares Nasdaq Biotechnology Fund (IBB), iShares U.S. Aerospace and Defense Fund (ITA), iShares U.S. Home Construction Fund (ITB), KraneShares Bosera MSCI China A Fund (KBA), Lockheed Martin (LMT), NVR (NVR), Koninklijke Philips (PHG), ProShares Ultra Health Care Fund (RXL), ALPS Medical Breakthroughs Fund (SBIO), ProShares Ultra S&P 500 Fund (SSO), Stanley Black & Decker (SWK), VF Corporation (VFC), Verisign (VRSN), ProShares Ultra FTSE China 50 Fund (XPP), and Direxion Daily FTSE China Bull 3X Fund (YINN).
In today's mailbag, another longtime subscriber weighs in on this year's Stansberry Conference and Alliance Meeting. Send your questions, comments, and concerns to feedback@stansberryresearch.com. As always, we can't respond to every e-mail, but we read them all.
"Porter and gang, thanks, once again, for the great time at the Alliance meeting. It is both informative as well as entertaining, I now have more than one reason to attend, throughout the years of going to the meetings I've met some really fantastic people whom I keep in touch with on a regular basis. In fact we met for dinner both before the meeting and after. The pool party afterwards is a great place for some fun discussion as well as great drinks! So count me in for many years to come. As always, I appreciate all the great service and information you provide." – Paid-up Stansberry Alliance member Bob G.
Regards,
Justin Brill
Baltimore, Maryland
October 5, 2017