This is a no-brainer that crude oil prices are falling due to a massive global supply glut caused by re-emergence of US shale oil. In long run this huge supply source will maintain a downward pressure on oil prices. Intermittent events like supply disruptions in Libya or Nigeria, or an OPEC agreement may cause a brief respite to oil prices but ultimately the price trend will remain down. Another major source of pressure on oil prices is the steady reduction in solar energy costs which is well on its way to become the major source of energy in a decade or so.
Energy is not going to be a major concern in times to come. This would be a big setback for oil producing countries but a boon for those who need it.
Failed OPEC efforts
OPEC countries tried to curb the US shale oil business by keeping supplies high and driving down the prices to drastically low levels of near 25$ (from highs of above 100$). It did lead to a dark period of bankruptcies and job cuts in US during 2014 to 2016. Goldman Sachs has estimated that nearly 170,000 oil and gas jobs were wiped out during this period as companies big and small scrambled to slash costs and stave off bankruptcy. But Saudis could not continue this for long as lower oil prices for such a long period meant eating out from their reserves as they have no other source of income.
So OPEC decided to finally cut production in 2016. This led to doubling of oil prices to near 50$ a barrel and along with this reemergence of US shale oil businesses. This simply illustrates that there is a cap on oil prices now – as soon as prices will rise above say 50$, the shale supply will rise to offset it and prices will again drop.
Saudi Arabia was a prime beneficiary from the 1998 to 2014 commodity “supercycle” that saw the oil price rise by 1,062 percent to a high of $116 a barrel. The resulting tsunami of cash flow allowed the nation of 31 million, where only 5.5 million have jobs, to accumulate $737 billion in foreign exchange reserves, while fully subsidizing a Western upper-middle-class lifestyle for the population.Despite Saudi Arabia needing a price of $90 per barrel to fund its lavish domestic entitlements, the kingdom in mid-2014 spiked production by 2 million barrels a day to destroy the U.S. oil fracking industry — which, based on a $90 a barrel breakeven cost, had more than doubled U.S. crude oil production to 9.3 million barrels a day.According to George Friedman of Geopolitical Futures, the price war cost Saudi Arabia at least $198 billion though January 2017, and created a worldwide surplus that drove the price oil down to an 18-year low of $23 a barrel in January 2016. Even after modest production cutbacks since then, the price only partially recovered, to about $53.18 a barrel.The Saudi predatory attack caused a large number of bankruptcies across the U.S. oil patch and sent U.S. crude oil production skidding to 8.4 million barrels a day by mid-2016. But instead of the American shale boom going bust, the U.S. Energy Information Agency reported that domestic crude oil production hit just 9.1 million barrel a day. Ref - www.breibart.com
Massive Shale Oil Reserves
Wikipedia: "A 2016 conservative estimate set the total world resources of oil shale equivalent to yield of 6.05 trillion barrels of shale oil, with the largest resource deposits in the United States accounting more than 80% of the world total resource. For comparison, at the same time the world's proven oil reserves are estimated to be 1.69 trillion barrels."
The US now holds more oil reserves than Saudi Arabia and Russia, the first time it has surpassed those held by the world's biggest exporting nations, according to a new study.
Beginning of a new Mega Trend - And Investment Opportunities
Long term low energy prices is a clear mega trend in its starting phase and if one can identify the long term gainers of this trend, he would be making multi-time returns from his investments.
How do we find which companies would gain most from this long term trend of low energy prices? It is simple - just find the industries that are energy intensive and whose products would see rising demand. One such industry is chemicals where energy cost is about 30% of total cost. Stocks of most of the good companies in this sector have already gone up substantially, but since we are talking here of a mega trend that would continue for decades to come, there is huge scope for growth.
Companies like SRF, Deepak Nitrite, Atul etc are some of the excellent investment opportunities.
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