Oil Falls to $50 Per Barrel
The price of oil remained soft this week.
Data from the EIA released Wednesday showed American crude inventories unexpectedly increasing to a one-year high.
The market had actually expected a decline in inventories. Wednesday's data marks the 10th consecutive weekly increase in U.S. oil stocks and frightened off investors, pushing prices down to just $50 per barrel yesterday.
Of course, OPEC was there to try to prop up prices.
Reuters reported yesterday that Russia is now considering a cut to its oil supply and is in talks with Saudi Arabia over how much to cut and when.
This is something we were expecting.
Just two weeks ago I wrote to you saying, “Anytime the price of oil gets too high, OPEC just comes out and says it has to increase production for one reason or another. And when it gets too low... you got it: it's got to decrease production for one reason or another.”
The Reuters report is a good example of this. In fact, I'm beginning to wonder if Reuters and OPEC are somehow in cahoots. Anytime Russia and Saudi Arabia are reported to meet, Reuters always conveniently seems to be there to report on it.
Either way, the news of the potential cut to Russian oil supply didn't help to boost prices this time. But I'm sure we can expect OPEC to continue talking about supply cuts over the next few weeks.
It's difficult to say if any of that will actually have an immediate affect on oil prices. But I think we can be certain that OPEC and other oil producers are going to do everything they can to get oil prices higher than $50 per barrel.
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Right now, oil is cheap. On Monday, I even mentioned that gas prices are so low as a result that people are getting surprised at the pump. And even though it may remain cheap for the next few weeks or so, it won't stay that way for long.
I'm not ready to say oil has hit a bottom just yet. But it's getting close. Investors would do well to use this time to purchase high-quality oil stocks for long-term holding.
I think it's very important to always keep in mind that oil is, in fact, a finite resource. And even though the demand for crude oil will lessen in the future, that's still a long way off.
The demand for oil has skyrocketed over the past several decades. But it isn't expected to peak for another 20 years or so.
Wood Mackenzie, a major energy industry consultant, doesn't see oil demand peaking until 2036. And that's a conservative estimate. Many major energy companies see oil demand continuing to rise through 2050.
Point is, the demand for oil will continue to increase for now. And it's a resource the world will ultimately run out of.
“My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a camel.”
— Rashid bin Saeed Al Maktoum, Former Vice President of the United Arab Emirates
With oil prices at $50 per barrel, there looks to be much more upside than downside. I think it's a great time to start looking into high-quality oil production stocks for long-term holding.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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