Have You Noticed This New Oil Boom?
Investment U | Apr 22, 2018 01:05AM ET
A stealth bull market in crude is underway, and it probably has a lot more to go.
That's the exact prediction I made in a recent column, and I'm sticking with it.
Admittedly, it's a "crazy" forecast. Most analysts in the energy sector are expecting the oil price to tread water at best. But I think these analysts may be underestimating the strength of the global demand for crude oil.
As you can see from this week's chart, our own government's Department of Energy (DOE) has been pretty bad at guessing it lately.
Around the world, bpd !
During that month, global demand for crude oil and other liquid fuels totaled nearly 99 million bpd .
Here in the US, an identical trend is unfolding. Demand is so strong that crude oil inventories have been falling sharply for months. According to data from the DOE, the nation's crude inventory has dropped 20% year over year .
The trend is very clear. And yet most experts distrust the strength of this trend. So they continually underestimate demand and overestimate supply.
The chart at the top of this article tells the tale. During the last 12 months, the global production of crude oil has consistently fallen short of the DOE's forecasts. On the other side of the ledger, global demand for crude has consistently exceeded those forecasts.
This robust demand is unlikely to slacken anytime soon. Global economic growth is humming along nicely, as is US economic growth. And the pooh-bahs at the Federal Reserve expect the good times to continue.
The electric vehicle (EV) revolution is another variable that some analysts believe will boost supplies of crude oil.
After all, according to Deloitte Insights, more than half of every barrel of oil becomes fuel for internal combustion engine vehicles. So it makes sense that EVs would reduce net demand for crude.
But that's not a 2018 story, or even a 2019 or 2020 story.
Demand for oil from the auto sector will rise much higher first, before sliding lower, eventually. And that's another big reason why the price of oil will likely rise much higher, before drifting lower at some distant point in the future.
Get The News You Want
Lastly, let's keep in mind that "supply shocks" are also possible. Venezuela's economic crisis is causing the near-collapse of its oil industry - putting more than 1 million bpd at risk.
Then there are the kerfuffles with Russia and Iran. Our government just slapped sanctions on Russia and ordered US divestment from various Russian companies, including Gazprom (MCX:GAZP) - one of Russia's largest oil companies.
Could these sanctions lead to a reduced flow of oil from Russia? Perhaps.
We could see a similar outcome in Iran if President Trump follows through on his threats to reintroduce sanctions on the nation's oil production.
The head of oil market research at rale believes the reintroduction of sanctions against Iran would curb the country's oil exports by about half a million bpd.
A half-million barrels here, a half-million barrels there, and pretty soon you've got a full-blown supply shock. I am not predicting these shocks will occur; I'm merely pointing out the possibility that they might.
The oil market possesses plenty of potential to deliver upside surprises. So don't be surprised if the price tag on oil hits triple digits in the year ahead.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.