In Focus: Oil to $100?
Almost a year ago I advised investors to avoid this trade. My warning came during Wall Street's celebration of Warren Buffett's deal to purchase Dominion Energy's (D) natural gas and transmission assets. Wall Street was happy to see a deal taking place during the pandemic and also ecstatic that Buffett was spending some of the $36 billion sitting on Berkshire Hathaway's (BRK-A) balance sheet at the time.
Several months before my advice and Buffett's purchase, oil prices had turned negative making me question the future of oil. Others however only saw really cheap oil prices. At the time of my advice to avoid the oil trade the U.S. Oil Fund (USO) was trading for just under $30 per share, a year prior, in July 2019 it was trading for ~$93 per share. Investors who ignored me and invested in USO are up more than 60% after taking advantage of cheap oil prices in 2020. That's a very nice win for a 12 month hold.
My instinct to avoid oil trades wasn't because I disliked oil or oil companies, it's because I saw alternative energy stock prices rising. I also saw electric car manufacturer Tesla (TSLA) growing in popularity, and several new electric vehicle companies ready to break into the market. I also expected the work-from-home phase to continue for the foreseeable future, prompting less demand for gas.
Increasing Oil Prices
In 2021 gasoline producers in the United States have wisened up, they no longer drill all day and stockpile oil all night. Instead, they've taken a wait and see approach by watching the national demand for gas and oil and waiting to drill. This has translated into higher prices at the pump for consumers and a higher price per barrel of oil for investors, because there's no longer an oversupply of oil and gas.
This time last year Crude Oil WTI (CL=F) was trading between $40 and $41 per barrel. Oil supplies were high and demand was low with many parts of the U.S. and the world still in lockdown. Now, crude oil is trading at $74.63 per barrel as of this writing and supplies are dwindling as demand ramps up.
The question for investors now is can oil hit $100 per barrel again? Analysts at Bank of America seem to think so. Analysts for BofA believe oil prices could hit $100 per barrel by mid 2022. Crude oil WTI hasn't seen $100 a barrel since July of 2014.
Bank of America believes that the work-from-home trend is also a work-from-car trend, and that people who are working from home also have errands to run, and then there's the pent up demand for travel. Both cases create an increase in demand for oil.
The post pandemic reopening has seen Americans as well as others around the world take road trips and flock to the airports for much needed getaways and reconnection with family and friends. This need to get away has caused gas prices to jump from $2.19 per gallon a year ago to $3.22 per gallon for the week ending July 5, 2021 according to the