Oil Price Forecast

Oil Price and Gasoline Price Forecasts

The biggest events that could drive oil prices very high haven’t happened yet.  The coming battle around Taiwan, which President Biden mentioned in his recent visit to South Korea.

China’s communist leaders conducted threatening military exercises to show their anger about South Korea and Taiwan. If and when the “event” occurs, Europe and North America will have to sanction China.  China is the world’s top oil importer (and afoul of carbon emissions guidelines). Their leaders will have to decide between a huge loss of export markets or to shut out Russian oil.

They would have to decide against Russia (and sneak oil in) publicly.  That would lead to severe shortages globally and drive prices very high, just as China resumes its product export production capacity.  By shutting down cities and production, the leader’s are likely hoping to ease expenses on oil and nat gas purchases.

Yahoo reports Saudi Arabia is expressing support for Russia, which doesn’t bode well for cooperation in keeping oil prices from skyrocketing.

Price Volatility Ahead of Summer Driving Season

The volatility of oil prices and gasoline prices of late show big actors are manipulating the market for some politic or public relations purpose. But this up and down manipulation during a massive choking of needed crude oil supply could end up badly for consumers and businesses.

Certainly oil companies listed on the S&P, TSX, and Dow Jones are enjoying the windfall from $110+ barrel of oil price.  Europe on the other hand is beginning to suffer. Transportation costs (see gasoline price forecast), food costs, heating costs, alone a signal that it may happen in North America and Asia too.

The question is whether you should be all in with these high flying oil stocks and sell your tech stocks? The US oil stocks and Canadian oil stocks are worth a good look. The argument here is from the lack of supply and the limited capacity of oil companies to produce more.

Screenshot courtesy of 30rates.com. Oil Price forecast next month.
oil price chart
Screenshot courtesy of Yahoo Finance. Oil price chart

Oil Steadying at $110 a Barrel

Despite attempts to reduce the price of crude oil, it’s hanging in around $110 (WTI).   Oil prices had a great year in 2021.  But 2022 is looking even better for energy investors given continuous selling at volume.  If Russian and Iranian oil leave the global supply, and US drilling can’t keep up, forecasts for $160 oil aren’t so crazy. Right now, WTI crude is priced at $109.90 per barrel.

As prices have now eclipsed the $110 level, we know the forecasts were accurate. The Russian conflict looks permanent and the deal with wicked Iranian government who have broken nuclear agreements has to be seen as tenuous. UN’s watchdog says Iran has sharply increased its stockpile of enriched nuclear weapon’s grade uranium while it is in talks with the Biden regime. A fire at the Chernobyl nuclear power plant which could sink ESG plans to rely on nuclear vs fossil fuels.

Biden ordered 30 million barrels to be released from the reserves yet that announcement had little effect on prices which only reclined by about $10. That 30 million equates to about a week’s Russia production.

Looking Ahead at the 2022 Midterm Elections

A republican led house and senate in the US would likely not be okay with an Iran deal. This means US production would have to be resumed against Biden’s anti-oil agenda. The US stock market forecast is being affected now even though investors seem to be optimistic amidst these dangerous global events. Prices of gasoline could surpass $5 soon enough. San Francisco is the first city to pass the $5 per gallon mark.

Further, OPEC has stated it will keep oil production increases at the stated 400k increase and not more. OilPrice.com reports that Saudi Arabia may increase their prices.  Oil production from Libya has been stopped to due storms and tampering. And exports from Russia have fallen faster even ahead of that expected by sanctions.

Whether next October’s elections will bring investment back to the US and shutting out imports is difficult to forecast. Oil analysts are likely beginning to look to the Republicans intentions regarding oil production, and it is likely positive which would mean higher US production and lower oil and gasoline prices in 2023/2024.

In fact, as oil prices rise due to supply issues alone, we should see major investment fund managers start moving their money back into the energy market instead of the Crypto market or tech stocks. Price growth + growing output x big free cash flow + big fund investment inflows + speculation should result in very high returns from oil stocks.

Energy industry experts were resoundingly forecasting higher oil and gasoline prices in 2022, some suggesting above $100 by summer of 2022 (they were correct), some even to $150 to $200 (not likely).  The gasoline price forecast is for a similar rise, well past $4 a gallon in the US, but much higher rises in Europe (without Russian supplies).  The US may be forced to increase sales to Europe.

Biden is tapping the US Fed oil reserves which won’t last long, and thus the lower prices for the next 3 weeks won’t last. His anti-oil regulations are what everyone knew would lead to this. Those who invested in oil stocks look very bright.

Canadian energy sector expert Eric Nuttall believes the most bullish factor pushing oil price upward is the exhaustion of OPEC+ spare production capacity. The lack of exploration and the ever rising cost of development  means oil production will not keep up to growing demand.

Goldman Sachs Chief Commodity expert says oil is “Incredibly Vulnerable” to disruption, and this hasn’t been factored into price forecasts as yet. If something goes wrong, then tight supplies could create a severe upward vault in price.  Consider too that almost everyone has underestimated the price of oil.

The effect of the Russian war and resulting sanctions has made all previous forecasts (except this one) obsolete. If you knew the political issues, you would have seen all this coming (Biden playing a political card and trying to crush Russia’s gas pipeline).  However, Russia’s not trustworthy, it just should have been negotiated another way to avoid bloodshed and military costs.

Some estimates are laughable ($40 in case, and $65 in another) and it makes you wonder about the economist’s credentials. The 2022 spring and summer economic recovery is just ahead!  And the travel season will dry up considerable oil supply throughout 2022.  The key is politicians are hoping for demand destruction (reduced use of crude oil and gasoline) while overlooking the lack of new exploration, drilling and production.

Yes, Biden did hold back on Russian Oil Sanctions, but it’s likely he’ll go ahead with them (he did and will more).

Money is Moving into Oil, Gas and Energy Bonds

The Financial Times new reports shows investors are moving the money back into energy even with their previous staunch position on ESG. Big funds have yet to make the big shift. Profit always wins out.

Oil investment trends.
Oil investment trends. Screenshot courtesy of Ft.com

Where are Gasoline Prices right now?

Gas is $4.40 currently and headed to $5 a gallon. If the US dollar should be devalued via trade or through stimulus, it would make imported crude and gasoline even more expensive.  In the US, gasoline prices equate to an average about 98 cents per liter, yet look at the prices gas sells for in other countries:

Global petro prices per liter.
Global petro prices per liter. See more on globalpetrolprices.com

European and global oil stocks might be even more lucrative.

Incredibly, EIA’s oil price forecast is for as low as $65 a barrel in the next 2 years which is highly unlikely unless a global recession occurs. OPEC+ excess oil production is reducing, and as the economic recovery kicks in, and with slowing US shale production, there is little doubt that best investment is oil stocks or at least oil etfs.

As I covered in the Canadian oil stocks post, there are stocks with huge profit potential. See more on the best Alberta oil stocks now.  The Keystone XL pipeline could be operational by 2024 if it got the go ahead, but that won’t happen with the democrats in office. The Republicans could demand it if they win the mid terms.

As energy industry expert Eric Nuttall says, we’re in a multiyear energy bull market. We’re just into the second year of big growth and there’s plenty of opportunity to cash in on this opportunity.

What is the Long Term Outlook for Oil Price?

In this graphic from Knoema, we see the long term price will continue to grow, and we’re already $50 a barrel up on this model.

Long term 30 year oil price forecast to 2050.
Long term 30 year oil price forecast to 2050. Screenshot courtesy of Knoema.

Big Profits Just Ahead

Oil investors for the most part don’t want growth, they just want profit (free cash flow back to investors). With oil companies rocketing, oil companies big and small may be the best bets in any stock market.  Any stock market forecast will include the oil price forecast. An unfortunate choice of governments to neglect oil exploration is leaving the US and its stock markets with a poorer outlook.

US shale producers are beginning to ramp up production, not wanting to miss out on this bonanza. However, as the world recovers from Covid 19, demand for oil is expected to rise considerably. Alternative energy promoters might have the headlines, but the worlds industry isn’t ready to go electric right now.  It will be many years, which means the next 5 years should create strong demand for oil and oil products. Gasoline will hit $4 a gallon on average across the US by summer 2022.

If you remove oil stocks from the stock market forecast, the Dow, S&P and NASDAQ do not look as compelling. You’ll need to pick some good ones, and right now might be the buy the dip moment.

Oil Price History Chart

We’ve been in the $100 range before in 2011 to 2014. Even though the price of oil has grown fast and looks on a trajectory much higher than before, oil stocks have not risen to their previous highs. One stock in particular is at only 2% of it’s former peak.

Oil Price History Chart February 2022. Screenshot courtesy of Yahoo Finance

Goldman Sach’s Jeff Currie Predicts $105 by 2023

Currie mentions weak activity by investors in the oil space, and suggests they will begin to move money en mass soon. He points out that earnings are above 5% while market cap is down to 3%.  It tells us that investors and industry analysts are shunning oil but when prices soar, they will flood into the oil market.

“I’ve been doing this 30 years and I’ve never seen markets like this,” Currie said in a Bloomberg TV in an interview on Monday.

Another factor in oil price futures is how much the United States must import each day. This stat is kept quiet by the media and politicians.  U.S. crude oil imports averaged 7.1 million barrels per day last week, up 0.8 million barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 6.5 million barrels
per day, 9.6% year over year.

OilPrice.com reports that US crude oil inventories were up by 515,000 barrels in the week to January 14.  Inventory reached 413.8 million barrels versus expectation of a 938,000-barrel decline.  EIA reports a 5.9 million barrel increase in gasoline inventories reaching 246.6 million barrels that week, while experts predicted a 2.6 million-barrel lift.

For energy investors, the question remains whether to buy oil stocks now or wait for a potential dip. The oil stocks below courtesy of Barchart show some strong price gains last week, just as the Dow, S&P, and NASDAQ have been crashing. Looks like a no brainer.

Cimarex and Cabot Oil posted incredible 5 day gains nearing 10%. Wow, and in the weighted alpha chart, Cimarex has posted a 254% gain in the last 12 months. Marathon Oil, APA and Conoco Philips have posted 10, 10 and 17% price growth in the last month, while Exxon, Shlumberger, Occidental Petroleum and Enlink Midstream pipelines have realized huge gains. See more below and drill down on the Barchart Website.

Best Performing Oil Stocks February.
Best Performing Oil Stocks February. Screenshot courtesy of Barchart.com

China however is in deep trouble with their energy supply and do not want to damage their own economic well being so that alliance is not a lasting one. If the Dems threaten the Saudis and Russians too much, they could shut down supply as a signal that they’re not going to take this lying down. OPEC production cuts are no joke.

The current US regime’s plan was to push oil prices and gas prices so high that consumers would be forced to buy electric vehicles. That plan was doomed from the beginning since consumer around the world still need their gas powered cars, trucks, motorbikes, and ATVs.

Should You Buy Oil Stocks?

If you’re investing for the 1 year to 5 year term, buying oil stocks has to be a brilliant purchase. After this brief but pathetic move to suppress oil prices, they will rise with a vengeance this winter and spring. The US may only have 5 years of oil reserves left, and that’s counting fracked oil reserves, and without further exploration and production, Americans will have to import foreign oil from Saudi Arabia.

The Saudis and OPEC may not be in a cooperative mood in 5 years, thus the price of oil could rocket. Remember that EVs will only solve perhaps 10% of oil usage, so the public has been mislead about the source of oil demand and our supplies. This means we could have a severe crisis of supply with no ready solution.

For smart investors, it means oil stock prices are rock bottom right now. Intelligent investors are going to like the supply/consumption dynamics that point to ultra high prices in the coming years. As the global recovery continues, demand for oil will rise significantly.

Last time oil prices went up, oil stock prices rose 6 to 10 times what they are now. And prices might go higher this time with oil producers pumping out more crude. That translates to much higher revenue. Investors are beginning to see the potential. Should you buy oil stocks?  Definitely review the possibilities.

The EIA forecasted that Brent crude oil prices would average $71/b in the second half of 2021 and $66/b in 2022. WTI oil surpassed $86. Winter isn’t even here yet so we’ll see prices rise through winter and into the 2022 driving season.

The President’s crashing popularity is in great part due to inflation.  The price of oil and natural gas are holding back the economic recovery causing grief and added strain on the social safety net. More Americans are losing belief that a sudden move to green energy is even possible let alone wise.  The anti-oil ruse can only go on so long.

If energy prices do get out of hand, and some believe prices well over $100 is certain, the economy, jobs report and stock market are going to take a hit. Check out the many forecasts for oil in the next year below.

Investment advisors have forecasted $200 to $300 a barrel and most are accepting that $100 will happen. Media investment celebrity (Cathy Woods) suggested oil will be much like Whale oil centuries ago — worthless.  Yet right now and for the foreseeable future, oil prices suggest oil stocks will be paying big dividends. Already oil companies are big forces on the S&P and Dow Jones.

Oil Price.com’s expert believes OPEC will not increase supply in the coming year. Why would OPEC or Russia increase supply to ease US problems?  MarketWatch is holding out a candle for a gush of oil coming from Iran which could ease the global supply problem. It’s a long shot.

The US has an adversarial relationship with Iran (a deadly terrorist dictatorship which threatens the west with nuclear bombs).

It’s only a matter of time before the price of gasoline stirs resentments and a few Republican comments toward Iran would sour any trade freedoms with the terror nation. At some point, Donald Trump will speak out against Iran whether he plans to run in 2024 or not. It will warn and rankle Iran’s leaders.

With a cold winter ahead, restrained output, failing alternative energy solutions, and big demand add up to very high oil prices. Experts say this issue will be persistent and will add to the inflation problem. Natural gas prices are slipping, but there is huge supply reserves and the lack of pipeline infrastructure to deliver will be solved. But oil prices are a different story.

Dems Weakening and Wobbling

As part of the anti-fossil fuel legislation, US production has been sabotaged and must import oil at great cost. This hurts the US economically as billions of dollars are sent out for imports. The transition to green energy will take decades. The recovery is raising demand and the US can’t capture supply it needs.

As prices get out of control, the call for the President’s resignation will be loud. He has the second lowest rating for any US President already and we’re not into winter yet.  His own party is balking at okaying the spending bills. But the Demo party can’t go back on their anti-oil promise. And the US President doesn’t control OPEC production.

As demand for US oil grows at high prices, oil companies in Texas, Oklahoma, Colorado, and Alaska will do very well. 3 years from now, it’s likely the Republicans will regain total control of the US government and they will open oil production back up. That will significantly raise revenues for US oil producers (and raise oil stock prices) and make the US energy independent again.  But demand will be high as the recovery continues and prices won’t fall quickly. Current oil companies will do well. Only a recession will drive oil prices down again.

With world leaders meeting in Europe this week to try to solidify carbon reduction rules and penalize oil usage, the price of oil will stay high.  Global manufacturers, farmers, and other businesses need oil products. The world is dependent on oil based products.  For the next 3 months, oil prices will remain very high as winter hits. Going into May, prices will depend on how much the Dems back down from their policies.

Alternative energy experts trash oil, but when WTI oil prices reach above $60 a barrel, oil has big investment value. The economies in Dallas, Denver and Calgary are likely to boom. Canadian oil stocks listed below have a special allure and are gaining attention. They’re held back by pipeline blocks which could be removed by the Republicans in 2024.

Oil is at the center of US and world manufacturing and production output.  Consumers have huge demand for oil-based products, from jet fuel to electronic devices.  The demand never ends.

Right now, the US government’s decision to abandon fossil fuels is looking particularly bad. As gas prices keep rising, and headed to $US5 a gallon, the cost to consumers will change their vote in 2022.

Best Oil Stocks to Buy

Which oil stocks should you buy?  Check out these best performing oil stocks today for consistent performers. There are penny oil stocks, risky, but may be your best bet to make a lot of money.  As investment pours in, these stocks might jump later in the year when supply gets desperate. See also the best Canadian oil stocks.

Best Oil Stocks. Screenshot courtesy of Barchart.com. See more at Barchart oil stocks.

Remember 2020 when some investors had the opportunity to jump on oil last year when they were paying people to take it. They were so smart.  The price has risen ten fold for some. Other than that dip, the price has been consistently high. And with no US fracking and further oil exploration and the blocking of the Canadian pipeline, US oil companies in Calgary, Houston, Denver, and abroad are certain this year is going to be their best ever.

Oil Price Chart courtesy of MacroTrends.

Highest gasoline price in the US?  $4.11

AAA gas prices US.
AAA gas prices US. Screenshot courtesy of AAA.com

The US national average for gasoline hit 3.19 cents and that hurts those who commute. With lithium batteries and electronic microchips in short supply, there is little concern about EVs taking over the market anytime soon.  There are huge issues with electric charging stations (however, check out EVGO share price) too which makes the electric savior seem ludicrous for many, many years.

Oil is the fuel of this decade and prices will rise, until US frackers and new production gets going again. Without fracking, there are big oil reserves that can be developed to help keep the US energy neutral.  That means not adding to the burgeoning national debt.

Best Oil Stocks to Buy?

Barchart shows the best performers.   Geopark Holdings is a south American energy producer and it was rated as a top sell stock just last month. investorsobserver.com gave it a good rating. Callon Petroleum is rocketing of late too.  In a timely action with good foresight, they just closed the acquisition of leasehold interests and related oil, gas, and infrastructure assets of Primexx Energy Partners and its affiliates. Devon Energy has been rising fast for two weeks, after its third-quarter 2021 earnings report. Seeking Alpha reports that Marathon Oil is on pace to generate $2.0 billion in free cash flow this year, which will do wonders to balance sheet health, and dividend growth. With oil prices rising even farther, it might be the best and safety oil stock to buy.

Oil ETFs

Experts believe the best time to invest in an oil ETF is in a period of rising prices. USO ETF took a big loss last spring when the price of oil dropped. It’s not necessarily a safe way to invest but as you can see, ProShares Ultra Bloomberg Crude Oil ETF has seen incredible growth.

US News offers up their best oil stocks to buy:

Okay, to whet your apetite for oil stocks to buy, let’s see what US News suggests. There are many other oil producing companies globally too that offer big upside.

  1. Exxon (XOM)
  2. Chevron (CVX)
  3. Conoco Phillips (COP)
  4. Schlumberger (SLB)
  5. Marathon Petroleum Corp. (MPC)
  6. Pioneer Natural Resources Co. (PXD)
  7. Phillips 66 (PSX)

And Yahoo’s experts chime in with their best oil stock picks:

  1. Renewable Energy Group, Inc. (NASDAQ: REGI)
  2. Exxon Mobil Corporation (NYSE: XOM)
  3. Energy Transfer LP (NYSE: ET-PD)
  4. PDC Energy, Inc. (NASDAQ: PDCE)
  5. Chevron Corporation (NYSE: CVX)
  6. ConocoPhillips (NYSE: COP)
  7. NX Resources Corporation (NYSE: CNX)
  8. Devon Energy Corporation (NYSE: DVN)
  9. Pioneer Natural Resources Company (NYSE: PXD)
  10. Renewable Energy Group, Inc. (NASDAQ: REGI)

You can check out more about these companies on InsiderMonkey.

It’s wise for longer term investors to look at Canadian oil companies in Alberta Canada. they’ve been suffering through a bad period, but it’s changing. The tired US administration has blocked Canadian oil, but if the Republicans come back into office (guaranteed), then Canadian oil will flow again. This will ease US oil and gas prices, and leave the US less vulnerable to Saudi Arabia and OPEC.

See the Canadian oil companies below.

For those looking for the best stocks to buy right now, it’s hard to overlook Canadian oil stocks.

The rising price of oil too, has provided a big boost for the economies in Dallas, Houston, Denver, Billings, Anchorage and Austin economies and the economy up in Calgary Canada. The Dallas housing market, Calgary housing market, Houston housing market, Austin housing market and Denver housing market are some of the hottest going.

Oil is going to power the US for a long time, and the world for even longer. Despite the push to alternative energy, the reality is that only oil possesses the power and utility people and business needs. With the stimulus bill from the house in jeopardy, the alternative energy sector may not get the trillions it wants to develop.  Not that alternative energy is a bad thing. It’s amazing technology. However, the cost and the output have been misrepresented to a gullible public who are beginning to catch wind of the politics.

3 Month to 6 Month Outlook

Oil experts don’t know what the 3 year to 5 year outlook is right now. Most of the price forces are political, and certainly if the Republicans regain the senate in 2022 and win the 2024 election, it could bring a return to big production increases.

Please do check out stocks to avoid, the best stocks to buy, best tech stocks, and the forecast for the next 6 months.

US Economic Outlook 2022
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The higher oil prices are due to:

  • reopening economy driving up demand due to commuting and manufacturing growth
  • reduced production due to the pandemic
  • shale production down in the US
  • political restrictions on fossil fuels is discouraging investment and oil rig counts
  • speculators like the supply/demand equation
  • restriction of oil imports from Canada
  • high cost of importing oil from Saudi Arabia
  • added taxes and anti-fossil fuel production legislation
Oil Price Volatility through the past decade. Screenshot courtesy of Macrotrends.

Goldman Sachs predictions of $80 a barrel prices almost came true. Very good forecasting. Now the questions is how high oil prices will rise.

Oil Price Forecast 2022 and Beyond

Breakeven price though is considered to be $50 so an $80 a barrel price will give Texas, Montana, Colorado and Alaska a sizable boost to their economies. The Austin, Dallas, Fort Worth, Houston, Denver, Billings and Irving housing markets should see significant growth.

According to EIA’s report, U.S. economic activity keeps rising after reaching multiyear lows in the second quarter of 2020. US (GDP) declined by 3.4% in 2020 from 2019 levels but will grow by 6.0% in 2021 and by 4.4% in 2022.

EIA says that more than 90% of crude oil production in the Federal Offshore Gulf of Mexico (GOM) was taken offline in late August due to Hurricane Ida. That caused GOM production to fall .03 /bpd less then the 1.5 million b/d in August.. They expect crude oil production to come back online during September to average 1.2 million b/d for the month before returning to an average of 1.7 million b/d in 4Q21. Full production is for November and December.

EIA believes oil production will increase to an average of 11.7 million b/d in 2022, driven by growth in onshore tight oil production.

World oil price forecast. Screenshot courtesy of EIA
World fuel consumption and consumption. Screenshot courtesy of EIA.

Gasoline Price Forecast

EIA expects the retail price of regular-grade gasoline in the United States will average $2.78 per
gallon (gal) during summer 2021, which is more than last summer’s average of $2.07/gal.

Gasoline prices US history timeline. Screenshot courtesy of EIA.
Gasoline prices US summer 2021.
Gasoline prices US summer 2021. Screenshot courtesy of EIA.
household fuel expenditures. Screenshot courtesy of EIA.
Gasoline Price History.
Gasoline Price History. Screenshot courtesy of Yahoo Finance.

And lower oil prices is fuel to a strengthening US economic outlook.

Best Oil Stocks

US News believes these oil stocks have the best outlook:

  • Exxon Mobil Corp. (XOM)
  • Chevron Corp. (CVX)
  • ConocoPhillips (COP)
  • Schlumberger (SLB)
  • Marathon Petroleum Corp. (MPC)
  • Pioneer Natural Resources Co. (PXD)
  • Phillips 66 (PSX)

Gasoline Prices Rising Quickly

The hurricane IDA was devastating and gasoline production in Louisiana still hasn’t recovered.

Gasoline Prices This Year Chart
EIA. Regional gasoline prices quarterly.

OPEC is the world’s major oil producer and they have agreed to limit production. When supply falls, prices rise. And many sources of oil are drying up (e.g. United Arab Emirates, Venezuela).

The Long Term Future:

IEA said that once US tight oil plateaus in the late 2020s and non-OPEC production falls back, the market becomes increasingly reliant on the Middle East to balance the market. There is a continued large-scale need for investment to develop a total of 670 billion bbl of new resources to 2040, mostly to make up for declines at existing fields rather than to meet the increase in demand. — from report in OGJ.com

For non-oil producing countries, relying on the middle east for oil, and a $100 barrel of oil price is worrisome. Over time, it drains significant wealth out of their countries and jumps inflation. That’s especially so for the US, Germany, France, UK, Japan, Australia, and Canada.

The last time oil prices spiked at $150, they soon crashed along with the US economy and the US housing market. And with real estate prices so high, could we see another housing crash?

Pierre Andurand, an oil-focused hedge fund manager made headlines when he said oil companies won’t invest in new production, thus suggesting a $300 a barrel oil price was “not impossible” within a few years.

Since investors believe green energy is ready for prime time, investment in oil exploration is way down, and oil refineries aren’t being built. As a result, the price of gas is likely to skyrocket in the next 5 years.

So the real story is not crude oil predictions, but rather rising gasoline prices in the US, Europe and Asia.

Adding to potential demand comes from the failure of the Kyoto Accord and the Carbon Tax regime. Once it fully fails, demand for oil will surge.

Never Say Never to Higher Prices

Could Los Angeles home prices double? Since 2012, they have doubled in price. In Toronto, home prices skyrocketed even more, and the local government had to kill the economy to suppress home prices. Canada lost jobs last month against expert predictions of +180,000 more. Constraints on US home building also could cause house price inflation too.

Housing experts: home prices won’t rise that much. They did.

Supply and demand in homes is steady, but demand for oil is much more intense during upward economic growth. With the US, Chinese, and European economies doing well, optimism high, and interest rates low, demand for oil will stay high.

What Drives Oil Prices?

Oil prices are driven by demand from industry for plastics, fuels, and also by supply constraints by producing countries. But the real determinant of prices comes from OPEC, who artificially control production to force prices up to suit their needs. OPEC cartel is a monopoly, whom President Trump warned he may file suit with the world trade organization.

The shut in of US shale oil and other reserves has kept 28 million barrels of oil out of circulation so far this year.  That reduction of supply is pushing prices up high. The expectation is that as the world resumes its economic post pandemic activities, the WTI price of oil will surpass $100 a barrel.

The oil embargo of the 1970’s showed us supply and high prices can wreak havoc on economies. Political turmoil, sabotage, war, embargos and more could take a lot of supply out of global markets at a time when global GDP is growing.

Andurand believes high oil prices won’t affect economies, but how can it not? Even though the US is going to be the world’s top producer of oil, Japan, UK, France, Germany, and other nations won’t be able to maintain their economies with growing US protectionism.

Andurand says oil prices need to rise fast to discourage consumption, otherwise a huge price shock will happen in a few years. Everyone is buying huge SUVs and trucks now. Ford stopped making cars. Consumption will rise from vehicles and from commercial products (plastics).

For President Trump and the US economy, high oil prices and gas prices may actually stimulate US GDP growth boosting US gas consumption. The US can grow its exports significantly with oil based products. That’s a big incentive once everyone realizes what an oil rich US is all about. The US is becoming one of the top oil producers and US industry will like what they can do with this new opportunity for lucrative export products.

With Trump putting sanctions on Iran, it could set off trouble. Further, if the Trump government was to come to an end, the US Dems could decide to close down shale oil production and off shore oil production, thus pushing dependence back on the middle east.

Eric Lee of Citibank forecasted $60 for oil and still clings to lower oil price forecasts (in hindsight good call!).

Goldman Sachs predicted this back on Feb 5th: The decline in excess inventories was fast-forwarded in late 2017 by stellar demand growth, high OPEC compliance, heavy maintenance as well as collapsing Venezuela production. Goldman revised their estimate from $62 to $75 and then onto $80.

How times can change fast. Here, Jeffery Curry, head of commodity research at Goldman Sachs discusses oil and business. Expert opinions are that mideast turmoil, greed, and high demand will not raise prices of gas and oil.

Do High Oil Price Rises Predict a Recession

According to a Wall Street Journal report, there is a correlation between price rises and recessions (seen in graphic below). It could be that oil price rises typically happen toward the end of a strong business cycle, which of course always ends. Did the business cycle end because of high oil prices or because all economic booms must die a natural death?

It’s at these times, especially this record length positive growth business cycle, when global economic pressure boosts demand well ahead of supply. And as we just discovered, no one wants to invest in old technology and fossil fuels. Yet, the green revolution is still a long way away.

Perhaps more people will realize how far away electrical energy is and we’ll begin to appreciate the ongoing role of fossil fuels in global economies.

Where to Invest in Oil Stocks

If this is a meteoric rise supported by US producer strength and big global demand for gasoline, it makes sense that the biggest producers will make huge profits. However, smaller oil companies might see their growth rocket even faster.

Take a good look at Canadian oil companies. Right now, pipeline problems are trapping Canadian oil from Alberta and Saskatchewan. Their stock prices may be suppressed as sellers are thinking it is a long term issue. As prices rise, the issues will be forced to resolution and the pipelines will begin to get oil flowing. See more on the US stock market forecast post.

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