If youre bearish aboutthe oil price and expect it to collapse to $10 a barrel, youll be pleased to hear theres an expert who agrees with you.If youre feeling bullish and reckon oil could hit $60thisyear, then once again, you have expert backing.
You can take your pick, because right now nobody really knows where crude is heading.
The bear case
There are good reasons to think oil could fall lower.John Brynjolfsson, founder of money manager Armored Wolf, isshort onoil and reckonsitmay soon fall as low as $15, half todays level. Last month, Standard Chartered said it could even hit $10 for the first time since the Asian crisis in 1998, driven largelyby financial flows until money managers in the market concede that matters had gone too far.
Both are plausible, as oil-producing nations pump at full tiltto maintain share. Inventories are at record highs, with surplus supply of 1m barrels a day, even before Iranian oil comes tomarket. US shale isnow hurting, but its resilience has amazed the world. The slowing global economy hashit demand.Cars are becoming more fuel-efficient. These factors may all explain why the oil pricerally quickly ran out ofjuice, with West Texas Intermediate slippingbelow $30 again.
The bull case
Theres also a good case to be made for an oil pricerebound, as energy companies slash investment, cull jobs and dumpassets.Wood MacKenzie calculates that $380bn of oil and natural gas projects have been put on hold, cutting production by around 2.9m barrels a day.US production alone will drop by 620,000 bpdby the fourth quarter, according to the Energy Information Administration. Thats a drop of 7%. At the same time, global demand willincrease by about 1.3m barrels a day, according toOPEC Secretary-General Abdalla Salem El-Badri. At some point, falling supply will meetrising demand and theyll tuckinto todays supply glut. Oil will find its floor, then startclimbing.
Shale oil billionaire Harold Hamm reckons oil will hit $60 by the end of this year. BP is betting the same way. Both may be guilty of wishful thinking. Or they may be right.
Oil price shock
You cantrule out an oil price shock either, which could really send prices flying. Spare capacity is at zero, which sets upthe market for volatility and price spikes. Ithink its worth buildinga position in stricken oil stocks, because at some point the price must surelyrise. The problem is that nobody knows when, or byhow much. The only certainty is that you wont timethe rebound correctly, because consistently timing any market is impossible.
Baseyour decision on your chosen oil companys fundamentals, particularly net debt levels, to see how long it can withstand low crude prices. The price will eventually recover, you dont want your stock pickto fall victim before it does.
Buying oil stocks is a gamble these days but at Motley Foolwe’ve identified a less volatile growth prospect, one with exciting potential.
This mid-cap company has been putting on the style lately and one of the Motley Fool’s top analysts reckons it’s the latest British brand with the potential to go global.
To find out its name all you need do is download our BRAND NEW report A Top Growth Share From The Motley Fool.
Click here to read this no obligation report. It will be yours in moments and won’t cost you a single penny.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.