Oil prices are heading higher on the chart with the cash West Texas Intermediate (WTI) crude rallying back toward the $100.00 level after threatening to test $90.00.
Steady economic signs in the United States, China, and Japan—the three largest economies in the world—along with some muted growth in the eurozone and Europe are adding some spark to the oil futures… But hold on; doesn’t the buying seem somewhat premature?
I’d say so, as I believe oil prices may have limited upside unless something dramatic surfaces in the Middle East that impacts OPEC oil.
The Organization of the Petroleum Exporting Countries (OPEC) has also come out and said it would maintain its current daily production quota and not cut supply in order to add support to oil prices.
I doubt we will see $130.00-per-barrel oil prices anytime soon—unless, of course, tensions escalate in the Middle East and a war breaks out across a wider region that would impact the flow of OPEC oil. The current nuclear agreement in Iran has also added some stability to the region.
And the futures market for oil supports my view, too. A look at the oil futures actually shows expectations for oil prices should decline back towards $92.00 by the end of 2014, drop below $90.00 in 2015, and continue downward to $80.00 by 2018. The December 2022 futures contract points to $78.00-per-barrel oil.
The chart of WTI oil below shows the downward channel and recent breakout, which I doubt will have much holding power as it nears the $100.00 level.
Chart courtesy of www.StockCharts.com
Now while the prospects over the next eight years don’t … Read More
There’s happiness at the gas pumps. The price of gasoline has been on the decline with the average price in the U.S. down to $3.29 per gallon as of October 28, a year-over-year decrease of $0.27 per gallon. In fact, we could see even lower gas prices on the horizon as oil prices fall.
In this new energy environment in America, the country is becoming more self-efficient in producing oil from its ground thanks to the growing adaptation of fracking technology in North Dakota and Montana to squeeze oil out of the rocks in the ground.
The explosion of oil production from the Bakken region in North Dakota has been superlative and has everyone, including myself, thinking there will be a time when the country will not have to buy oil from the Organization of the Petroleum Exporting Countries (OPEC). In my view, it’s just a matter of time.
And if you add in the rise in oil from the Canadian tar sands, the move to independence in oil demand will become even more realistic. According to IHS, the amount of oil being moved via rail cars could rise to about 700,000 barrels a day by the end of 2015. (Source: Domm, P., “Canadian oil rides south even without Keystone pipeline,” CNBC, November 4, 2013.) The hotly debated Keystone XL pipeline, if it’s ever built, could move 830,000 barrels of oil per day from Canada.
Clearly, the numbers are there, and unless a crisis in the Middle East surfaces, we could see oil prices continue to decline as domestic and Canadian oil flow rises.
The days of high oil prices … Read More
While many Americans might be disturbed by recent news of the ongoing mass violence in Egypt, it’s unlikely that many have considered the economic impact the growing violence could have on America. And if you think the impact won’t be all that significant, you would be wrong.
Oil prices are already seeing the effects of the violence, as the market sector is extremely sensitive to any increase in political uncertainty on the world stage.
While it is true that Egypt doesn’t actually produce much oil, there are two crucial factors that play into Egypt’s significance to this market sector: the Suez Canal and the Suez/Mediterranean pipeline.
Most people are unaware of how tight the supply of oil is globally. Any interruption in the supply chain will send oil prices up significantly.
We’re already seeing the impact the riots are having on the market, as oil prices have risen substantially over the past couple of months. This market sector doesn’t run with a lot of excess slack, and making up the shortage of supply is extremely difficult to do on a global basis.
According to the U.S. Energy Information Administration (EIA), approximately seven percent of all oil transported globally by sea went through the Suez Canal. If this route is affected, oil prices would have to rise, and this market sector would need to adjust to the lack of available routes.
The next available route from Saudi Arabia would be to go around the bottom of South Africa, which means a massive amount of additional miles. These increased costs borne out by this market sector would then translate to higher oil … Read More
Recently, I’ve had several conversations with friends of mine who were quite worried about the latest rise in oil prices. They brought up two interesting questions that I can help shed some light on: 1) will higher oil prices have an impact on the U.S. economy; and 2) how can the average investor profit from this event?
As we all know, consumer spending is a huge part of the U.S. economy. And, to no surprise, Americans consume more gas than any other country on a per-capita basis. So yes, on the margin, higher oil prices will certainly impact the average American.
When it comes to long-term investing, we should incorporate these macro-economic variables, basically looking at the big picture. Oil prices have remained elevated for some time, and I believe they will continue to be relatively expensive.
Considering most Americans are not seeing significant increases in their wages, I would consider reducing exposure to firms that focus on discretionary income for my long-term investing strategy. Think of the things you want to buy but don’t really need. I think we could see lower-than-expected revenue for these types of firms.
For example, if you’re short on cash this month, you will likely pay for food rather than some fancy gadget or expensive jeans.
Are there ways you can profit from higher oil prices when it comes to long-term investing?
I believe there are firms that will do quite well over the next decade. One of the companies I’ve mentioned before to my readers is Halliburton Company (NYSE/HAL). I’ve been a big fan of this company not only because of my belief … Read More