Oil used to be a great investment. It provides things like gas, heat, and transportation, necessities that every country needs. It seems impossible that something so vital –selling at $115 per barrel in 2014– could drop price so dramatically that in February of 2016 we saw barrels selling at $26 dollars a barrel.
Oil is currently priced the lowest it has been for over twenty years.
For the price of pair of cheap jeans, you could buy a barrel of one of earth’s most precious commodities.
The prices of oil dropped for many reasons: The U.S. doubled its oil production in the last few years, with oil imports growing. Russia also pumped out enormous amounts of oil. With larger amounts of oil, places like Saudi Arabia, Algeria, and Nigeria had competition and had to drop their oil prices. When demand gets less, prices have to drop to accommodate it, and even now, with oil prices on a slow rise, currently about $45 a barrel, many still see oil as a bad investment.
Not all though. Mark Mobius, a leader in emerging markets, and the executive chairman of the Templeton Emerging Markets group (worth over $880 billion), sees oil prices likely to rise to $60 a barrel by the end of the year.
Mobius said that traders buying oil derivatives, project cancellations (leading to less oil supply, thus increasing demand), and declining rig counts will all lead to rising prices this year. While oil is unlikely to hit $100 this year, $60 is above most break-even prices for producers.
This is a good sign for those interested in buying oil investments near the bottom. There are many ways to invest in it: from the oil rigs, equipment, and oil stocks like Exxon Mobile (XOM).
Oil is cyclical. If you have a long view, buy beaten down oil stocks on the dips below $40 per barrel.
Read more about Mobius’ predictions at The National.