Oil Prices Are in the Dumps, but Why?

The market thinks the trade war will ax demand, which is pretty good now.

Oil prices did something abnormal on Wednesday: West Texas crude rose 2.4%. The trend, though, is in the other direction. Price are down by a third since October, to $52 per barrel.

Right now, demand is strong and OPEC has been holding back production to prevent a glut that will really keelhaul petroleum prices. Still, forecasts are that demand will ebb in coming months and next year, thanks to the US-China trade war. The price should struggle back to around $58 at year-end but not improve much more in 2020, the Energy Information Administration projects.

Does this make sense? Not to Mike Morey, chief investment officer of Viking Fund Management. For one thing, US shale oil, which has done so much to flood the market, is going through a restructuring and its growth rate is slowing.

Owing to blah forecasts like the EIA’s, however, “oil is in the do-not-touch basket,” Morey said. That’s too bad, because in spring, oil seemed to be rebounding.

Consider the Energy Select Sector SPDR ETF. It’s down 13.4% from its April high, and is even with how it started the year. The exchange-traded fund contains all the major oil companies.

Well, yes, oil is a commodity, and commodities fluctuate like mad sometimes. That’s one reason Morey predicts that major consolidations are going to happen in the oil industry. “If you don’t have scale, you won’t succeed,” he said.


Related Stories:

Yes, Oil Prices Are Back, but Maybe They Have Plateaued

Oil Prices Are Rising, Despite the US Shale Boom




Tags: , ,