Russ Koesterich: Current headlines are filled with talk of gas prices falling below $3 a gallon. It’s a welcome bit of good news for US consumers and 4th of July travelers, and slow global growth is likely to keep oil prices down in the near term. But in a post early last month, I gave three reasons why I expect crude prices to rebound in the long term: marginal supply is increasingly coming from unconventional higher cost sources, many large oil producing companies require a high crude price to balance their budgets and OPEC has very little spare capacity.
Now, I have another reason to add to my list of why I expect crude price to rise – this chart. Included in a new BlackRock Investment Institute paper, “US Shale Boom: A Case of (Temporary) Indigestion,” the chart shows that global oil demand is likely to greatly outstrip supply by 2030.
Global energy consulting firm Woods Mackenzie expects the oil supply gap to be 20 million barrels of oil daily by 2030. As the Institute’s paper points out, the gap may not end up being this large. Annual global growth, for instance, may not turn out to be as strong as the 3.2% assumption in Woods Mackenzie’s analysis. In addition, higher oil prices could end up weakening demand and new technologies such as shale could help fill in the gap.
Still, I believe that oil prices will move higher in the longer term. As a result, I continue to hold anoverweight view of global energy companies. Investors can access these stocks through the iShares S&P Global Energy Sector Index Fund (NYSEARCA:IXC).
Written By Russ Koesterich From The iShares Blog The author is long IXC.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist as well as the Global Head of Investment Strategy for BlackRock Scientific Active Equities. Russ initially joined the firm (originally Barclays Global Investors) in 2005 as a Senior Portfolio Manager in the US Market Neutral Group. Prior to joining BGI, Russ managed several research groups focused on quantitative and top down strategy. Russ began his career at Instinet in New York, where he occupied several positions in research, including Director of Investment Strategy for both US and European research. In addition, Russ served as Chief North American Strategist for State Street Bank in Boston.
Russ holds a JD from Boston College Law School, an MBA from Columbia Business School, and is a holder of the CFA designation. He is also a frequent contributor to the Wall Street Journal, New York Times, Associated Press, as well as CNBC and Bloomberg Television. In 2008, Russ published “The ETF Strategist”(Portfolio Books) focusing on using exchange traded funds to manage risk and return within a portfolio.