What in the world is happening with oil?
It’s unbelievable to think that 8 short years ago oil was at $140 a barrel and people in the world were legitimately concerned that the globe would run out in the near future. Now Saudi Arabia is storing oil in barges on the sea because they have nowhere else to put it and the U.S. has revolutionized the energy industry in a way we couldn’t have imagined 10 years ago. It’s amazing how these changes come about. One day you wake up and the world is a different place all at once.
With the U.S. having clearly demonstrated the ability to drown the world in oil, it’s extremely hard to imagine oil prices climbing back anywhere near $100 in the near future. Professional analysts we talk to throw numbers out anywhere from $40 to $70 dollars regularly. Those numbers make most investors happy because it means things stay relatively cheap on the supply side for businesses and we don’t have as much talk of massive bankruptcies in the energy sector that seemed imminent in January. They also mean Russia isn’t as angry as they were a few months ago, which is probably good for everyone.
Where will oil be in December 2016? No one knows, but it does seem reasonable to theorize that recent changes may very well result in a fluctuating but lower price of oil than what the world has been used to for the past 20 years.
Good news is for us investors is that, though they may have stung us last year, low oil prices reduce costs for us at the pump while lowering transportation and production costs for businesses. We’ve been hearing the term “new normal” a lot lately in a variety of sectors. Who knows what that will ultimately play out to mean, but it seems clear that the energy scene is changing in ways we can’t quite wrap our heads around yet. I certainly don’t mind seeing $2.00/gal gas again though.
P.S. Oil went up 8% during the week we were editing this... go figure.
All the best,
Wesley R. Nicholson, Mike Allen and Aaron Everdyke
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