Whatās Going On Here?The price of oil got knocked down to a record low earlier this year, but some investors reckon the slippery elixirās price is about to get right back up again. What Does This Mean?Oil prices have bounced back a bit from Aprilās lows, partly thanks to the pick-up in Chinese demand post coronavirus. But seeing as COVID-19 may have changed travel and consumption patterns for the long term, Negative Nancys donāt think global demand will ever return to pre-pandemic levels. Couple that with the decisions from some of the worldās biggest oil companies to slash spending and shift toward greener energies, and cheap oil might be here to stay.
Over time, the commodity should hit a price thatāll allow oil companies to turn a profit ā somewhere around $50, which Goldman Sachs estimates is the breakeven price. But some Positive Pollys have gone a step further: they reckon the right investor behavior and renewed oil demand could send the price of a barrel to $150 by 2025. Why Should I Care?For markets: More doom and gloom, please.
The most optimistic of oil analysts depend on the most pessimistic of banks and investment managers. If the latter refuse to invest in or lend to energy companies that want to double down on oil wells, demand for the obsidian earth-juice could exceed supply and push prices up. Optimists might also be hoping investors have got ahead of themselves: the futures market suggests oilās price will stay below $60 for the next decade, but thatās a lot less likely if the worldās transition away from fossil fuels takes longer than expected.
The bigger picture: You wanna piece of me?
Itās not just commodity investors who care about oil. In the US alone, oil companies represent about 3% of the entire stock market, and investors can buy into different parts of the industry ā upstream, where oilās produced, or downstream, where itās sold ā to profit as oil prices both rise and fall. | 