Why Everyone Gets Oil Prices Wrong [Seadrill Ltd, Linn Energy LLC, BreitBurn Energy Partners L.P., BP plc (ADR)]

Did oil then drop to $30/barrel or $20/barrel in subsequent months?  No, four months later the price was close to $70/barrel. Two years after that, the price had rose up to $115/barrel, then slid to the mid-$80s a few months later.  In June 2014, oil was approaching $110/barrel again. In October, the bottom dropped, and here we are.

You’ll hear numerous reasons for the recent price decline: Increased supply due to U.S. and Saudi pumping coupled with decreased demand in Europe and China leads the way. There is likely some truth in the explanations, but they are uselessly simplistic because they fail to capture the complex dynamics I refer to.

When bin Talal said oil will never again see $100/barrel, my initial reaction was that oil will hit $100/barrel by year’s end.  I don’t know if that will occur. To be sure, the next price boom could start next month, or maybe next decade. After all, oil prices meandered between $20/barrel and $30/barrel for much of the 1990s.

What I do know is that I am more inclined to find value when oil is priced below $50/barrel than when it is priced above $100/barrel. The price decline has created opportunity.

This article is brought to you courtesy of Steve Mauzy From Wyatt Investment Research.

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