Happy Black Friday, everybody! Did everyone brave the crowds this morning (or last night) and hit the malls in search of great deals? Or, are you like me and prefer to avoid the madness? Even if I hadn't been working today, I would have avoided the Black Friday shopping experience... as I usually do. I just don't have the patience. Besides, if I had been shopping, we wouldn't be able to bring you our thoughts on the amazing plunge in crude oil prices. We're also going to give you a reality check on the state of corporate profits in the United States, as there's been some concern lately the only reason the S&P 500's earnings have looked so good has been because of all the stock buybacks. Our data may at least partially dispel that myth. First things first though - a look at the recent wild crude oil ride, and what's likely to be next. Are Low Oil Prices Here to Stay? In case you haven't heard yet, the price of crude oil plunged more than 6% on Friday, hitting a low of $67.82 per barrel before crawling back to a close near $68.20. You've also probably heard the reason - OPEC decided not to cut production in order to soak up some of the supply, which would theoretically push prices higher. The commodities market players - assuming the price trend as it stands right now can and will last indefinitely - sent oil to lows not seen since 2010, when prices were on the way up. The whole thing got us thinking... how much of the now-33% price slide since June is attributable to actual fundamentals, and how much of is the result of nothing more than speculation or assumption? It matters, as how the pullback was sparked may well point to how long the weakness is going to last. To answer the question, let's just start at the beginning with the simplest data - a look at supply and demand, at least here in the United States. As they say, read 'em and weep. Here's a chart of oil supplies and oil consumption in the U.S. through the end of last week. I see a little more demand, but not rampant demand, in recent months, which I have to attribute to low gasoline prices. It's doubtful we would have seen this much usage had gasoline prices not been so cheap. It's also worth noting how even though we have the capacity to increase the total global supply to meet demand growth (more on that in a second), the oil supply itself hasn't changed much in years. If anything, greater consumption should have put upward pressure back onto oil prices rather than allowed oil prices to keep sinking, but that's not how things played out. Though my data on the global supply and demand is a little fuzzy, broadly speaking, it's no different than what we're seeing in terms of supply and demand here in the United States. Based on just this data alone, it would be easy to assume the plunge in oil prices is little more than an emotional response to an idea, and as such could be wiped away just as easily - and just as quickly - as it materialized. And truth be told, there is something of that knee-jerk hysteria packed into the pullback. We can't say there's not a basic (even if overstated) soundness to the idea that there's a supply and demand imbalance for oil, however. In a nutshell, you wanted it - you got it. After the 2008 spike in oil prices that sent the commodity up to $180 per barrel, the nation's populous began clamoring for more control over oil prices, which ultimately meant the advent of fracking and the establishment of new oil exploration efforts within the United States' borders. This push is what turned up the heat on places like Eagle Ford and the Bakken regions. Well folks, it worked. Now, those of you who've been reading the SmallCap Network newsletter for a while will know I don't say anything without knowing for sure it can be proven. I've learned from experience how much trouble making an assumption can be. Today's no different. There's some actual, tangible proof American oil independence is becoming a reality. It's on the chart below, which I borrowed from the U.S. government's Energy Information Administration website. The chart was updated as of this month too, so it's plenty current. What's this chart telling us? It's saying the United States has increased its capacity for oil production by about 2.75 million barrels per day since the end of 2012, and is expected to have ramped up its capacity by roughly 3.75 million barrels per day by the end of next year. Considering the world consumes about 92 million barrels per day and the U.S. produces a total of about 8.7 million barrels per day - as of the latest enhancements to our capacity - this isn't a chump-change figure. Along the same lines, this chart below illustrates how non-OPEC output growth actually exceeded the growth in global demand in late 2013 and 2014, and for 2015 non-OPEC production could and should keep up with demand growth. Most of that additional supply is coming from the United States. My point is, while the plunge in oil prices has nothing to do with total global supply and total global demand (which hasn't changed much in years), it does have a great deal to do with capacity and potential. It doesn't take a whole lot more potential output to bring stability to the oil market. It doesn't take much more output to really pull the rug out from underneath oil prices. The rest of the world sees it, now knows it, and is forced to respond to it. The U.S. is now almost as big of a player as the Saudis and Russia. As for OPEC, the reason they're not willing to cut output in order to buoy prices is that those countries don't want to lose market share for the long run. They'd rather lose money than risk being displaced as a supplier. That's quite a change from the way things were not too long ago. None of this is to suggest oil prices can be sustained at their current level of $68.00. It's just not realistic because most producers - regardless of locale - have a tough time drilling and digging profitably at that price. It is to say, however, oil prices could remain subdued for a long while, just above its extraction cost. And in the meantime, with momentum being sharply to the downside, oil prices could slip lower before finding their ultimate bottom. Look for a modest ascent within the foreseeable future though, bearing in mind the new normal for oil may well be under $100 per barrel as more U.S. capacity comes online. It's not just a theory anymore. If you want some trading specifics on crude oil prices, today's edition of the Elite Opportunity newsletter offered its readers a bunch more thoughts on what's going on with oil here and where it's going. I'll also congratulate John Monroe over at the EO who saw this day of reckoning coming a long time ago. American energy independence is one of several major themes he's been preaching to his readers for a while, and he basically hit the nail in the head. If you'd like to get John's thoughts on oil's key price levels and/or hear about his other megatrends he's telling folks how to make money on, I suggest you become an Elite Opportunity member today. Here's how, or cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/ Yes, American (Total) Profits Are Growing You've probably heard a little of this discussion already. Heck, we've actually touched on it a few times. What's that? Trying to figure out to what extent stock buybacks are making it seem like the market's key companies are driving earnings growth. Were someone able to feasibly adjust for all the recent buybacks, would the S&P 500 actually show any net earnings growth, or have the reduction in float sizes simply made it appear this way? There are several opinions on the matter, from one extreme to the other. Both sides seem to have their own supporting math-work too. My guess is (as is usually the case), the truth is somewhere in the middle. Still, in that we need to know what's really going on with corporate America's bottom lines, we'd like to be able to look at data that can't be tweaked by buybacks. As it turns out, there is such a source. Take a look at our chart below. It's a plot of the quarterly measure of the nation's total, after tax profits (factoring in any necessary inventory adjustments) through the third quarter. We did see a lull in Q1, which could have been impacted by bad weather at the beginning of the year. Still, it was a concern that was potentially obscured by a flurry of stock buybacks. There's nowhere for the effect of buybacks to hide in this Fed-supplied data though. Total corporate profits have grown for two consecutive quarters, and the fourth quarter is almost always a big step forward in terms of nationwide corporate profits. Just so there's no confusion, the $1.547 trillion profit figure isn't necessarily driven only by S&P 500 companies. It's possible much of this after-tax gain was driven by small companies, up to and including non-publicly-traded companies. It doesn't matter. The nation's companies really are growing their collective bottom lines again after a stumble in Q1, resuming a much bigger uptrend. Just wanted to let you know the truth. There's no market discussion today, as Friday's action was downright lame. I'm sure the fireworks will resume in earnest on Monday. We'll see you then.