Oil Price Forecast – 3 Month 6 Month 5 Year Outlook

Oil Price and Gasoline Price Forecasts

With the US and global economies recovering from the pandemic, and oil production politically sabotages, we’ve seen the price of oil jump from $38 last year to $72 of recent. It’s one of the best buys in the stock market right now.

It’s a fantastic benefit for the Dallas, Houston, Denver, Anchorage and Austin economies and the economy up in Calgary Canada.  It’s been quite a while since President Trump bought millions of barrels of cheap oil and stored it underground.

However, US oil reserves and pump activity is down considerably.  As demand increases in the recovery, it appears production in the US will grow to generate significant revenue growth. The wild card in oil forecasts is Joe Biden’s plan to lift export sanctions on Iran. They could push millions of barrels into the supply chain.

The Democrats plan to crush fossil fuels at any cost means many aren’t investing in oil exploration or production so the net effect is less oil and rising oil prices. See the oil price forecast below.

3 Month to 6 Month Outlook

Oil experts don’t know what the 3 to 5 year outlook is right now. Most of the price forces are political, and certainly if the Republicans regain the senate and win the 2024 election, it 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.

Hot Topic for 2021/2022
Are oil prices too high? Did Biden make the right decision?
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The higher oil prices are due to:

  • reduced demand due to pandemic shutdown of travel and manufacturing
  • 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
Oil Price Forecast. Screenshot courtesy of Macrotrends.
Oil Price Volatility through the past decade. Screenshot courtesy of Macrotrends.

This current drop in oil prices is impacting financial markets worldwide. U.S. stock markets are down 30% from last month’s record peaks.  Now investors fear the possibility of a full blown global recession as European governments delay or default on their debt payments. Will the stock market crash?  The source of a 2020 crash was thought to be random and unexpected and this one was unexpected.

 

Corona Virus Suppressing Demand for Oil

Along with lower WTI and Brent crude prices is increasing fears of recession in many economies as the Corona Virus shuts down trading. That is pushing oil prices down and may send the DOW, S&P and NASDAQ indexes plummeting again on Monday.

Travel, transport and manufacturing are beginning to recover and this will put significant upward pressure on demand and therefore the price of oil.

Oil Price History Timeline Chart – screenshot courtesy of macrotrends.net

Higher oil imports and gasoline prices will weigh down economic growth in the US and around the world.  It will raise US trade deficit, raise debt and put upward pressure on interest rates. That in turn will affect both the stock market and housing market forecast for 2022 and beyond.

Breakeven price though is considered to be $50 so a $70 a barrel price will give Texas, Montana, Colorado and Alaska a sizable boost to their economies.  the Austin, Dallas, Fort Worth, Houston, and Irving housing markets should see significant growth.

EIA WTI oil price forecast.
EIA WTI oil price forecast. 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.

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)
Best Oil Stocks June 2021.
Best Oil Stocks June 2021. Screenshot courtesy of Barchart.com

Gas Prices Falling

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 as warned he may file suit with the world trade organization.

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 democrats 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.  This is not advice to invest in these firms but rather an opportunity to hedge against the coming recession with a quick win with oil, if you have the funds to play with.

Here’s some oil stocks you may want to investigate. Most are listed on the TSX and have their headquarters in Calgary:

Touchstone Exploration Inc. (TSX:TXP) – $0.255
Oil & Gas Exploration and Production

BlackPearl Resources Inc. (TSX:PXX) – $1.46
Oil & Gas Exploration and Production

Zargon Oil & Gas Ltd. (TSX:ZAR) – $0.54
Oil & Gas Exploration and Production

Pengrowth Energy Corp. (TSX:PGF) – $1.05
Oil & Gas Exploration and Production

Journey Energy Inc. (TSX:JOY) – $1.99
Oil & Gas Exploration and Production

Bonavista Energy Corp. (TSX:BNP) – $1.61
Oil & Gas Exploration and Production

BNK Petroleum Inc. (TSX:BKX) – $0.65
Oil & Gas Exploration and Production

Crew Energy Inc. (TSX:CR) – $2.75
Oil & Gas Exploration and Production

Screen Capture courtesy of web.tmxmoney.com

Obsidian Energy (TSX OBE) $1.45

Baytex Energy (TSX BTE) $5.89

Tourmaline Oil (TSX TOU) $23.41

Whitecap Resources (TSX:  WCP) $9.16

Suncor Energy Inc. (TSX:SU) $50.92

Cenovus Energy Inc. (TSX:CVE) $13.99

Encana Corp. (TSX:ECA) $16.90

If you’re firmly opposed to fossil fuels, then investing in residential solar power might be a good play.  Rising electricity rates and growing demand from electric vehicles are powering up this tech sector. With big storage batteries arriving, electricity is launching a lot of entrepreneurialism. In fact, solar power is creating more jobs than any other industry.

Solar panels prices are jumping due to tariffs on China, however that’s spawning US solar panel producers. Check them all out at energysage.com.  Their stocks prices are up 6% to 9% on the news that California is now mandating them on new homes being built.

It will be fascinating to watch the rising momentum of oil prices and gas prices and how accurate experts predictions are.

Don’t forget to bookmark this page as I’ll be continuously updating this very important topic.

 

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