With the last summer holiday a couple weeks away oil prices have certainly started to climb as usual. But are the prices going to stick. It certainly seems that over the summer the $40/bbl support level held. That being said now it looks like we may have higher prices heading into the fall.
As oil prices rebounded throughout May and June, drillers restarted idle rigs in hopes of catching higher prices as they evolved. Unfortunately, the upswing in production and drilling was accompanied by growing supplies and less consumption, thus resulting in a supply glut.
As a group, OPEC represents the world’s largest producer of oil, with Saudi Arabia being the single largest producer at over 10 million barrels per day, roughly a third of total OPEC production.
The dramatic decline in prices in July alone are a testament to the commodity’s volatility, subject to supply and demand dynamics worldwide. Yet even with such an efficient market, as claimed by Saudi Arabia, producers tend to get it wrong as to what the actual demand might be. Some oil analysts believe that OPEC leaders, specifically Saudi Arabia, may have increased production knowing that additional demand was not yet there.
Crude oil prices traded as high as $107 per barrel as recently as June 2014, and now pulling back to near $40 as of the end of July. As with any drop in commodity prices they eventually go back up, and oil is no different, see The Bounce.
What does this mean for you? Investment wise, it maybe a good time to pick up some oil stocks. Many of these stocks have been trading at less than half their highs from two years ago, so even a small increase in the price of oil can result in a nice return on your investment.
Additionally this will mean higher gas prices at the pump - so budget accordingly. Don’t get caught by surprise when gas soon hits $2.50 to $3.00 or more per gallon. Make other financial adjustments now, so you can handle the higher energy prices to come.
Sources: OPEC Monthly Production Report, OPEC Secretariat, Energy Prospectus Group
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