Oil and gas prices over the years have become a huge expense. More than ever people are watching world oil prices and more specifically the prices that they pay at the pump.
I came across an article in the Economist that predicts that
“The precipitous fall in oil prices over the past year may just be paving the way for another spike"
See Article Here.
After reading the article, I have to say I agree with some of the key points.
First, at the end of the day, world oil prices are a function of supply and demand. We know that currently demand has been on the decline because of the global recession. However, over time, world economies will start to grow again and invariably increase their consumption of oil. When this happens, prices will start to rise again.
The oil future market is already pricing in a increase in oil price (just look at the recent run up in oil prices; from $35/barrel to $60/barrel.
Secondly, oil companies across the world have been cutting their production and exploration activities (given the lower prices for their product). Now this is fine because demand for oil is much lower, but this level of supply will not be sufficient when world economic activity picks up. So what will happen? Prices will increase substantially.
Therefore, oil rich countries such as Saudi Arabia and Canada will benefit tremendously - just look back at the oil boom in Alberta over the past 4 years. The oil boom in Alberta occurred because the oil price was rising, oil profits were increasing and oil companies were investing billions of dollars to extract oil in the province ($100-$150 billion dollars in Alberta alone!)
History always repeats itself and so it looks like the stage is being set for another oil boom.
So this might be a time to get back into oil and invest into regions that will benefit from higher oil prices.
Ajayan Sritharan
Real Experts
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