The cure for low oil prices is. . .low oil prices, so says John Kerekes, industry expert who spoke at our offices last week.
Demand will increase as prices decline and, with low oil prices, companies reduce production as much as possible. Before you know it, we’ll have less supply, greater demand, and higher prices for oil will follow.
The primary reason for the recent decrease in prices is the increase in U.S. oil production. The following chart shows that the amount of new production in the U.S. dwarfs the amount of new production in the rest of the world.
Oil prices are expected to rise by 50% over the next year, according to the research done by Mr. Kerekes’ sources. An increase of this magnitude is normal in oil markets. It would bring prices above the production costs for most of the world, and our growing demand for oil may continue to drive prices higher.
Like the stock market, anything that is publicly traded experiences pull-backs and moments of inefficiency. Last week, stocks went through a momentary decline as they continue their long-term growth trend. In the stock market, pull-packs are times when stocks are returned to their rightful, long-term owners.
If you, or anyone you know, wonders “where do we go from here?”, consider taking advantage of our second-opinion service. A free conversation could be worth its weight in gold (or silver or crude or…). Similarly, if you or anyone you know, has an area of expertise you would like to share, please tell your financial advisor. Let’s talk about it!