They never cease to amaze me, experts. I stumbled across an article published last Friday, July 6, at https://oilprice.com/Latest-Energy-News/World-News/Bernstein-Oil-May-Jump-Past-150-On-Chronic-Underinvestment.html that made me chuckle. If you’ll read it, you might chuckle, too.
It appears that so-called analysts at Sanford C. Bernstein & Co said last Friday (and we all hang on their every word, right?) that “’chronic underinvestment’ is setting the stage for the next super-cycle that could see oil prices soar to $150 a barrel or more…”. Now, I have to give that company some credit, they have courage if nothing else. But to be honest, they were only parroting an article released by Bloomberg first, in the wee hours of the morning on the same day (https://www.bloomberg.com/news/articles/2018-07-06/oil-spike-above-150-feared-as-investors-demand-cash-over-growth).
I’ve been riding the oil industry rollercoaster for 40 years now. And it’s just that. A rollercoaster. Prices up one week, down the next. I was there when oil hit rock bottom at $9.00/bbl in February, 1986, after flying at $44/bbl just 3 years earlier. I also was there when oil hit rock bottom again at $23/bbl in February of 2016. Strange coincidence that both crashes were in a February. Hmmm. But put this in perspective, people.
When oil topped out at $44/bbl in 1983, it was a minimum of ten years in the making. Just 10 years earlier, oil had been trading at $3/bbl. But early 1973 was pre-Iranian embargo. When WTI topped out again at over $140/bbl in 2008, it was a very long 22 years in the making! So here we are, 2018, oil fell to $23/bbl in early 2016, and these analysts are predicting that it will skyrocket to $150 in the not-so-distance future (but don’t say exactly when that is). While it can be said that history always repeats itself, it can also be said that history never repeats itself the exact, same way.
So let’s break down their earth-shattering prediction. The only support the Bloomberg article gives for its $150/bbl-in-the-future prediction is the statement, “if oil demand continues to grow to 2030 and beyond…” Is there anyone reading this who believes that oil demand will not grow to 2030 and beyond? What worldwide population number do we have in 2018? What are we predicted to have in 2030? So, again: why would oil demand not grow to 2030 and beyond? It’s the second sentence in that paragraph that gives away the analysts’ true motive for making such a shocking prediction. They want to be the stock brokerage firm investors will consult and buy the “right” oil company stocks from.
Don’t rush out and spend your royalties on a down payment for anything, not based on these articles, anyway. Do I believe that oil will ever trade again at $150? Yes, I most certainly do. But not because in 2018, money to drill was paid out by oil companies as dividends instead. I believe it will hit $150/bbl again when some event in the world will occur causing significant and lasting disruption in normal crude deliveries. Just what will that event be?
Anyone out there know a good soothsayer with a rented crystal ball?