Oil Price Predictions – Gas Price Forecast Crude Oil Price Factors

Oil Price Predictions – Gas Price Forecast Crude Oil Price Factors

Oil Price and Gasoline Price Forecasts

Oil price is sitting around $24 a barrel as the US is in talks with the Saudis to end the price war with Russia. But it might be too little too late. The glut will be fueled by a Covid 19 induced slowdown worldwide for some time.

Word is there is a 1 billion barrel oil glut and Iran is preparing to export huge amounts soon. Forecasts are for a reduction of 20 million barrels a day because of the virus shutdown.  Vitol’s CEO says oil demand could slump by 15 to 20 million bpd over the next few weeks.

Huge supply and reduced demand caused by the Corona Virus shutdown is adding hugely to the glut of unused oil. Experts believe it would take a year to clear the glut of oil and return prices. They may have priced in the return of the China economy.

Incredibly there is talk by some about a new OPEC ruled by the US and the Saudis. That’s would be an unholy alliance.

Some forecasters feel the price of WTI oil could sink well below $20, to perhaps $5 a barrel amidst OPEC tensions.  And they didn’t know about Iran. Consumers are definitely loving the low oil, natural gas and gasoline prices. Low gas prices could be a significant factor in the US economic resurgence and resurgence of the stock market.

GasBuddy’s forecasting model believed gasoline prices will fall below $2 a gallon by the end of March. But their model may not take into account all the factors pushing it lower. $1 a gallon for some areas is likely. Some regions have hit a $1.85 already. Gas prices are plummeting.

The lower oil prices are due to:

  • OPEC flooding the oil market in battle with Russia
  • more production coming online
  • OPEC and Russia may want to eliminate US shale oil producers in order to elevate prices later
  • The Fed reducing lending rates and signaling bad times ahead
  • Corona Virus work shutdown reducing demand

Oil Price Chart courtesy of Macrotrends

The decline happens as Saudi Arabia called for production cuts which would raise prices, but Russia declined to cut production which has launched a price war. The question becomes how long can these countries continue at these prices?

One additional factor believed to be responsible was a less cold winter weather which cut demand for energy. Spring is looking good in North America.

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 and manufacturing have already seen drastic reductions, and with the virus news in the US, it is a depressing scenario.  The Dow Jones plummeted 3200 points last week and is in for a bad week ahead. The stock market forecast for 2020 is a little bleak at this point.  Markets expert are beginning to suggest a stock market crash might be looming. Asian stock markets plunged today, down 5% across the board. Gold has risen to $1671. Panic is becoming a regular response.

The golden lining for some may be that once in a lifetime stock buying opportunities are appearing.

 

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

Lower oil and gasoline boost the US economic outlook, lowers the trade deficit, reduces pressure on interest rates and could reignite the housing market forecast after the Corona Virus period has ended. The President suggested this period may last to July.  Low oil prices brightens everyone’s mood and oil producers are okay in this price climate if they can break even. Breakeven prices though is considered to be $50 so time will get tough for oil producing regions such as Texas, and up in Canada in Calgary.

Gasoline Price Forecast 2020

Gas Prices in 2009

EIA summer gasoline price forecast is: $2.56 per gallon for the summer. However, the recent oil price drop could result in lower prices as refinery output increases. According to a report from BNN Bloomberg the total US inventories (normally unreported) were growing huge (estimate of 500 million barrels, which is still within the normal range).

Well, now we know gas prices are much lower and headed further downward. $1 per gallon is not out of the question as gas is stockpiled due to substantially less travel.

The US trade situation has bolstered US stock market performance of recent, yet without US consumer and business import spending, the global economic picture darkens. Reduced demand is causing speculators to reduce their positions in oil and energy stocks which are the worst performers of recent.

Energy Stocks Take Beating

Want to buy energy stocks?  Good thing you didn’t, but when the bottom out, you may find some bargains. Here’s the big losing oil stocks.

Energy Stocks – screenshot courtesy of Yahoo Finance

Oil’s Downward Price Forecast

Yet political and economic turmoil will make oil price volatility a certain thing. The Saudis and Texas will fight for $100 a barrel oil, yet demand for oil is receding.  Even if US shale producers reduce output, it won’t be enough to prop prices back up.

The EIA predicted $63 oil price for 2020, but that forecast will not happen (note: I was right, it’s $29 and heading downward).

The EIA predicts average prices around $2.56 a gallon for gasoline, but this looks unlikely too. Investors have to take any expert forecast with a grain of salt. The models simply don’t take all factors into account. The Corona Virus shutdown and OPEC oil flood reminds us of that.

EIA expects that domestic U.S. refinery production of motor gasoline, including gasoline blendstock output, will be 8.6 million barrels per day (b/d) this summer, or 80,000 b/d higher than last summer. EIA forecasts that the United States will be a net exporter of total gasoline, including blending components, during the summer months and export an average of 87,000 b/d from April through September in 2019. — EIA Summer Forecast

It wasn’t long ago that President Trump threatened legal action over OPEC price fixing and manipulation.  The Saudis responded that any anti-cartel/monopoly legal action would result in the demise of US shale producers (who couldn’t survive with low prices). Regardless, Trump’s efforts to reduce the price seem to be working.

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

Experts believe the net effect would be lower prices for everything from plastics to gasoline for consumers. For the gas guzzling, SUV loving American consumer, the law suit and trends would be great. More money staying in the US means more jobs, more travel, lower transport costs, and a boost to the economy. Higher prices would slow the economy costing jobs, and perhaps lead to higher interest rates.

What is NOPEC?

The NOPEC bill — known as the “No Oil Producing and Exporting Cartels Act,” would allow the U.S. Department of Justice to file an antitrust lawsuit against OPEC for trying to control oil production or to affect crude prices.

The Saudis however were implicated in the murder of a reporter and have very few friends left in their fight for high oil prices. For decades US lawmakers have tried to stop the Saudis from artificially and unfairly raising oil prices, but no previous President would pursue action in world courts.

President Trump however may be amenable to taking legal action. If he does, it could lead to anti-trust action against a lot of big monopolies, many of them US based. Knowing Trump, he’d loved this battle.

Could it get past the Senate and House?  No, the democrats will not pass anything by President Trump, so it’s dead in the water.

NOPEC Might Not Even be Necessary

The US has means to increase domestic oil production, and they could allow Canadian crude oil to flow via pipeline into the US, to further increase supply.  IEA forecasts U.S. exports of crude oil and petroleum products on course to double, to 9 million barrels per day by 2024. The U.S. will surpass Russia’s shipments and threaten to unseat Saudi Arabia, as the top oil exporter.  A few weeks ago, the U.S. exported a record 3.6 million barrels per day of crude oil.

As you can see in the this graphic, Statista’s forecast is an overall downward trend, despite the Saudi led mission to raise themt. If global economic growth slides, and US oil production keeps rising, there is little to support the Saudis in their attempt to push them up.

Crude oil is the commodity that influences the health of economies and housing markets more than any other. It isn’t lumber, steel, lithium, aluminum, or gold.

And while oil prices get featured in business media, it’s gasoline price increases that generate real emotion. For commuting consumers who drive everywhere, saddled with big mortgages and rising interest rates, the high price of gas could cripple their lifestyle. How would $10 a gallon for gas feel to feed your SUV or truck?

But Where There’s Smoke, There’s Opportunity

If oil and gasoline prices jump worldwide and OPEC is able to extend the high price period, oil companies are looking at a winfall. Below, we’ll take a look at where you might want to invest to take advantage of this situation and where the biggest potential for profit is.

Oil companies are moving into a period of high profitability.

Screen Capture Courtesy of the Street.com

Gas Prices Falling

And for the past 2 years, the price of gas is not tied to the price of oil.

In fact, gas prices have big taxes and other fees added to make it even more expensive. And when gasoline production is constrained, it sets the stage for lofty gas price predictions.

Canadian gasoline prices are 40% higher than in the US, making it an expensive summer for debt burdened Canadians looking to travel.

Trading Economics forecasted $1.10 gas prices in Canada yet they neared $1.40 in Toronto and $1.60 per litre in Vancouver. Currently, in Ontario, they’re around $1.14 a litre which is very high. The drop in the price might allow the price to ease a little.

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 manadating 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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22 years of experience as a content researcher, strategist and SEO expert for marketing agencies and his own company. Gord's investigation into housing markets, stock markets, and AI marketing strategy helps clients achieve market dominance. Some of Gord's blog posts have achieved half a million pageviews with over 7,000 social media shares, revealing Gord Collins special talents for building reach and impact. Visit the AI Marketing website for an introduction to the AI marketing era. Artificial Intelligence is lending extra benefit to the power of marketing software which is enhancing SEO, Copywriting and Sales. Gord offers a new brand of SEO services and to regain his reputation as a leading SEO expert. See his 2nd book which describes the powerful relationship between SEO and Content Strategy. Gord's passion is researching algorithms, trends, forecasts, and market statistics to establish clients at the top.

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