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This is a Clear Path to Profits (Even in Volatile Markets)

by Dr. Kent Moors | published January 28th, 2014

It was quickly becoming OPEC’s worst nightmare. By the mid-1980s, oil prices had begun to collapse.

What’s more, renegade cartel members were selling more oil than their monthly quotas allowed, which merely made a bad situation even worse.

Ordinarily, that’s was a point when the Saudis usually would step in and cut their own exports.

But by then, the pricing situation had become untenable. Instead, the Saudis embarked on a bold new strategy.

First, they opened up their own spigots and flooded the market with crude. This taught those recalcitrant OPEC members a big lesson about lost revenues.

Second, they also introduced a “netback” pricing strategy that proved to be far more important – both for them and today’s energy investors.

This new strategy considered the entire pricing sequence, using refinery margins (the difference in cost between processing and prices on the wholesale level) as a measure of prices upstream and downstream.

Now, twenty-eight years later, the same netback strategy has made a comeback that has handed us a clear path to profits – even during periods of high volatility.

Here’s how this strategy works…