Asanalysts were lining up to warnthat the oil price could crash to $10 a barrel, it staged a shock fight back and jumpednearly 10% in a day. A barrel of Brent crude now trades at $32 after last Fridays excitement,so is this the start of the recovery?
Oils Future
One man with a top-notch forecasting record certainly thinks so.Pierre Andurand, founder of the $615m Andurand Capital Management, isworth listeningto, ashe is one of the few tocorrectly predict the slump in oil prices. Now he claims the worst is over, and the price will probably rise to $50 this year and $70 in 2017, due to lack of spare capacity and falling production among non-OPEC members. Can hebe right twice?
Andurandis ina minority. The oil price is being squeezed again on Monday, as Chinese diesel usage falls and Saudi Aramco says it plans to maintain current production levels. Moodys has just slashed its price estimate to $33, citing a glut of supply and the forthcoming entry of Iranian oil.It reckons oil will rise by just$5 barrel on average in 2017 and 2018, as OPEC members battle for market share and consumption stalls in China, India and the US. Iranian oil output will make up for any production cuts in the squeezed US oil sector, Moodys says. HSBC has just marked down its assumptions.
Oil Shock
Ask another 10 analystsand you will no doubt get 11 different answers. As ever, the truth is that nobody knows. Fewpredicted the oil price collapse, and fewwill accuratelytime its recovery. There are too many variables and the human brain cannot balance them all, nor can any computer program.
That said, I believe the oil price hasto rise at some point. What goes down can also go up. Especially something that has been driven so incrediblylow, so quickly. The world still runs on oil, and even though renewables are getting cheaper, it will continue to do so. Hundreds of billions of dollars of investment and production has come off-stream, because it no longer makes sense at todays prices. At some point, supply will be squeezed too tight, sentiment will shift, the price will climb. Geopolitical shock could turbo-chargethe process. It will happen, we just dont know when.
Also, we dont know how high oil can go.The flexibility of shale is likely to put a capon any increase, and the days of $90 oil are over for now. Yet some kind ofrecovery is baked in and that makes oil one of the mosttempting trades on todays market, butonly for investors who can stand another year or two of low prices, just in case the rebound comes later rather than sooner.
You might prefer to play any rebound by investing in an oil major such as BP or Royal Dutch Shell. Or maybe Tullow Oil,Ophir Energyor Nighthawk Energy. The rewards maybe massive, but so are the risks. Where oil goes next is anybodys guess, and right now, everybody is guessing.
Timing markets is virtually impossible to do accurately on a regular basis, but other investment strategies can prove far more fruitful.
This FREE Motley Fool report,10 Steps To Making A Million In The Market, sets out how investing in stocks and shares over the long-term can make you rich.
You don’t have to make big calls or be a share picking genius, ordinary people can become astonishingly wealthy by investing in stocks and shares.
This no-obligation report shows you how to do it, step-by-step. To find out more, click here now.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B and Tullow Oil. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
