Oil prices over $100 are very elevated. They are actually down 40% from the 2008 peak, but given the excessive sentiment of Hedge Funds Buying Oil over the past year and producers Selling we feel the risk remains to the downside
Record Bullishness by Funds and record selling by producers should lead to a downtrend before year end 2014.
Time to raise a beer to the cheer the US Oil industry which has finally surpassed Oil imports and sits at 25 year highs in domestic Oil production adding almost a Million new barrels a day annually. At the current pace of increase US Oil production would replace all Oil imports near the end of this decade achieving true energy independence despite the anti-fossil fuel efforts of the current US Government.
Oil prices in the 90’s or higher will maintain the torrid production of domestic Oil and Natural gas in the US and Canada and spread to other countries like Brazil and Mexico like a Gold rush. Such growth will lower our trade deficits while creating jobs and income. Our 2013 forecast letters in August and September calling for a top in Oil prices near 110 and a decline into the 90’s has traced out as expected. While a trading range is likely to continue, we would favor even lower lows oil prices later in 2014. Technically Oil prices will find it hard to rise to new record high prices (>$150) until Hedge Funds realize there will not be an Oil shortage and start liquidating.
Oil Supplies are swell
While the decade long double digit annual surge in new Craft Breweries is also amazing (20% sales surge in craft brews in 2103), the Oil story in America should astound you as well. Just over 3 years ago advanced technologies in Shale began implementation in several areas of the country. This dramatically reversed the steep decline in US energy production and reliance on imports that enriched dictatorships and fed extreme Islamic violence.
So many have been preaching Peak Oil and many still refuse to give up the charge. Economics teaches us price is the ultimate arbiter influencing supply and demand. Phony supply shortages manipulated by radical dictatorships created an enormous incentive to invent technologies to drill into deeper waters, and more importantly hydraulic fracking and horizontal drilling to tap oil fields the size of those in Saudi Arabia right here in the US of A.
Jobs, wealth, energy independence, defunding terrorism, improving trade deficits for YEARS to come with an astounding growth cycle that can only be stopped by falling prices are elements of this great story.
As long as world energy demand grows, the US and Canada will be major beneficiaries on the failure of other nations to implement our advanced technologies. Rising supplies will keep a lid on rising prices until there is a recession that will collapse Oil and gas prices like 1980 and 2008.
Mexico has finally given up on their collapsing Oil fields and turned them over to US investment that will certainly elevate their production in a few years. More countries will follow as old oil fields become vibrant once again barring an EPA over reach.
Oil will be the tech play that allows a low inflation economic recovery to continue until wage inflation kicks in.