Why High Oil Prices Might Be Here to Stay

The largest fortune in history — that held by John D Rockefeller — was built on oil.

The 19th Century was a period of great change and rapid industrialisation. The iron and steel industry spawned new construction materials. The railroads connected the country. It was a booming time for oil — a newly-discovered fuel source.

Rockefeller’s Journey to Fortune

Towns began to have their own stories of oil strikes, making businessmen rich in the process.  Hearing prospectors were becoming rich overnight excited the young Rockefeller. At the time, Rockefeller was a nobody from Cleveland, Ohio.

But after founding the Standard Oil Corporation with his brother, Rockefeller began his journey to become the richest man in modern history. And it’s all thanks to booming oil in the 19th Century.

Today, few would call oil a booming industry. We’re a long way away from oil prices of US$150 a barrel. But higher oil prices might be here to stay.

oil prices

Source: NASDAQ

Limited Supply Means Higher Oil Prices

Oil has shot up from its low in June this year. And it’s largely thanks to limited supplies. As Bloomberg reported:

Rather than pure speculation, this move is rooted in fundamentals: falling inventories and increasing demand. The outlook for crude is no less bright as U.S. fiscal stimulus, in the form of tax cuts financed by additional deficit spending, could also send prices higher.

Falling oil and petroleum product inventory dynamics is not just a U.S. phenomenon. Commercial stocks have been trending lower all year for the member countries of the Organization for Economic Cooperation and Development, both in absolute terms and in the number of “days of supply.” Due to these declines, OECD commercial stocks are now close to the average OECD commercial inventory levels between 2012 and 2016. These supply dynamics are supportive for oil prices.

Take a guess which stocks are rocketing up on the ASX? That’s right, oil stocks. Calima Energy Ltd [ASX:CE1], Blue Energy Ltd [ASX:BUL] and Sacgasco Ltd [ASX:SGC] are up 525%, 316% and 192% respectively in 2017 alone.

If oil prices continue to rise towards the end of the year, all three stocks could continue their climb. Don’t want to miss out on any other high growth resource plays? Click here to see what we believe are the top 10 Aussie mining stocks on the ASX today.

Cheers,

Härje Ronngard,

Junior Analyst, Markets & Money


Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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