Jim Rogers has sort of set himself apart when it comes to commodities, so I was curious to see what he had to say about oil prices. He didn’t have a lot to say, but he did post this today:
It looks to me when you have something like this happening it usually develops momentum and goes down for a while. But somewhere along the line there is going to be a great opportunity to buy crude oil, to buy Russia, to buy countries that produce oil. It is going to be wonderful before too much longer.
Nothing earth shattering there. We all know that oil prices will not stay low forever, but it is probably going to get worse before it gets better (speaking from an oil company investor’s point of view).
Supply and demand.
Everything comes down to supply and demand.
I’m not certain of all the events that took place to get us to where we currently are, but suddenly the world has way more oil than it is using. I saw an aerial photo recently of oil being stored in tankersâ€”lots of tankersâ€”off the coast of Galveston, TX. The situation has gotten to the point that Goldman thinks oil at $20 per barrel is a likely scenario. This is definitely not good news for companies that rely on a higher oil price in order for their economics to work.
That said, with all things economics, there will be winners and losers. Lower oil prices will translate into cheaper gas prices at the pump. It will also mean cheaper fuel for transportation and shipping services. The downside is that many people in the oil industry will be out of jobs, something this economy cannot handle.
From this morning’s Fortune CEO Daily email:
Oil prices are unlikely to return to $80 a barrel before the end of the decade, the International Energy Agency said this morning. And if OPEC continues its policy of pumping oil at record rates to increase market share, they could remain close to $50 a barrel through 2020.
The agency’s World Energy Outlook is closely watched by the industry, and its new report is likely to dash any remaining hopes of a quick oil rebound. Slower global demand, improvements in efficiency, and growth in alternative energy sources are all taking their toll. You can read the full report here.
The agency also noted that wind and solar energy accounted for half of all new power plants in 2014 – while growth of coal is slowing, after rising to 29% of the global energy mix from 23% in 2000. But the agency warned that more conventional generating capacity will have to be put in place in the coming decades to deal with the intermittent nature of wind and solar. You can see the effects these days in Texas, where an abundance of wind energy has led companies to offer free electricity between 9 p.m. and 6 a.m.
It’s amazing to me that experts can predict this, but they couldn’t predict the drop in price in the first place. I don’t remember seeing or reading anything forecasting oil prices dropping in 2013 or 2014. Anyone else? Did I miss something?
Maybe this will put to rest the idea that big oil sets the price of oil. I can promise you that if they did control the price, oil wouldn’t be sitting at under $50 per barrel right now.
Remember back during the Bush presidency when people were crying about oil prices and whining that big oil set the price of oil?
Take a look at this chart:
So, here’s my question of the day:
If “big oil” sets the price of oil, why are oil prices roughly 40% of what they were a year ago?
I find it interesting that we now have an oil glut when just a year or so ago, people were predicting $150 per barrel oil would be the new norm.
How is that possible?
How did no one see it coming?
Oh, and now “they” are saying that there is no end in sight for this oil glut. You have to love these “experts.”
In other news…the market’s beating is putting lots of stocks on sale. Perfect for those of us who are still saving for retirement.
I found this 3-year chart for Brent Crude this morning. Brent Crude is what is used in refining gasoline.
It’s brutal for oil companies, but good for consumers. Unfortunately, the price of gas at the pump doesn’t seem to reflect the full drop in the price of oil.
Brent Crude (the oil that’s used in gasoline, as I understand it), is on the rise again. This is why gas prices are moving back up again. It gets tiresome. Gas prices go up, touch a new high, then fall back down a bit to give us a false sense of relief and then start moving right back up again. I almost feel like we’re being played.