What is going to happen to Oil prices?

Sitting at $27.67 a barrel is cheap at the moment, which makes me crack a smile when it comes to fuelling my petrol guzzler (best car I’ve ever owned!)

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So what will happen?! Very simple, it either goes higher or lower. 

How on earth can it go higher?

Well thats what OPEC predicted in its January report, stating that they expect to see the price of crude oil to begin a rebalancing process in. Arguing that the non OPEC members are not able to sustain the level of production due to the low oil price.  

That is all well and good, but with Iran able to produce half a million barrels per day now the sanctions have been lifted surely that means excess supply.  Iran would of been in a position of storing oil over the last few months at least to take advantage of the half a million barrels per day cap for a bloody long time. 

Considering supply is massively outstripping demand at the moment (around one/two million barrels per day over-supply), adding a further half a million barrels per day could lead to oil prices to be very low in the future. 

What has caused the oversupply:

  1. US oil flooding the market in the absence of Iran
  2. Poor economic growth in Europe and China, not demand matching the supply

Stuart Gulliver (HSBC Chief Exec) argued the following: 

“Major producers are currently delivering 2-2.5 million barrels per day more than demand, so the question is how long can the continue to overproduce for at that level”

He expects the price of oil to settle between $25 and $40  in one years time.

My advice: 

Stay way clear of oil companies until the price stabilises, then take a look at adding this stock to your portfolio as so far weathered the storm quite impressively, and pays a huge 7.7% dividend yield!

Happy Tuesdays…

The Young Investor

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