The Midnight Oil Can’t Be Burnt Forever

When the Chinese drilled the world’s first oil well in 347 AD using bamboo poles, their only intention was to burn the oil to produce salt.

Oil wasn’t of much use in the 4th century, but salt was a precious commodity.

Fast forward to the present day, and that same dark liquid is the basis for our entire modern existence. From jet fuel, to plastics, to your beloved Toyota Corolla, our lifestyles are hinged on the assumption that there will always be more oil to burn.

Globally, we consume around 96 million barrels of oil every day. At this rate, worldwide reserves are estimated to dry up by 2039. Not far off at all.

It’s the delicate balance of supply and demand that makes the crude oil price one of the best economic indicators. And for the past two years, it has been soaring.

Crude Oil’s Rally Comes to a Halt

But just as Jason predicted this week, crude oil’s rally was destined to come to a grinding halt. Although brent oil almost reached $60 per barrel last month, on Monday, the oil price sunk. Brent has now fallen back down to the mid-$50 range.

This decline is typical for US crude in the fourth quarter. But many were optimistic about its profit potential this year. With geopolitical tension from the Kurdish referendum and rumours of OPEC extending the cap on oil production until 2018, there was huge hype about expected supply outages.

But with the recent price drop, it looks like it will be more of the same.

According to OilPrice, there was an increase in both OPEC’s and the US’ oil production in September, causing prices to fall. This was further exacerbated by the herd-like effect of major investors making bullish bets on crude.

This is why hype should always be questioned. We should prepare for change in all aspects of markets. Especially when it comes to a resource that is being burned into oblivion.

Who knows? Maybe renewable energies will render oil obsolete. Thomas Edison’s first commercial use of the light bulb in 1882 did crush the oil industry’s main market. And many US naval ships and aircraft carriers now use nuclear power. Electric vehicles are only a drop in the ocean to today’s car market but, with all the major manufacturers working on their own models, that won’t likely last.

Change is inevitable. So we have to plan ahead and pay attention to the trends. In the short term, though, Crisis & Opportunity’s Greg Canavan says oil is set for a massive bounce-back in the year ahead.

Greg has uncovered how the world’s most secretive corporation plans to send the oil price soaring in 2018. And why three ASX stocks could be looking at staggering gains of up to 5,580%. Details here.

This week in Markets & Money

On Monday, Shae warned against believing the hype surrounding the US shale industry. Many people are excited about the so called ‘oil boom’ happening in Texas right now. Some are even saying it could match Saudi Arabia in oil production. But, as Shae explains, this overly optimistic attitude may lead to a boom that is short-lived.

To read why, click here.

On Tuesday, Jason confirmed Shae’s scepticism. Even though crude oil has been soaring higher this year, that doesn’t make it a bull market. Looking at the bigger picture, oil hits seasonal lows. And with all this overproduction, she argues that demand is likely to dwindle in the months ahead.

To read the full story, click here.

On Wednesday, Shae explained why cryptos are holding strong in the face of adversity. Bitcoin has bounced right back after dropping 31% with the news of China’s ban on crypto exchanges. This feat was possible partly because Chinese investors have found a new way around the regulations. So, although central bankers would have you believe otherwise, cryptos won’t be going away anytime soon.

To read the full story, click here.

On Thursday, Shae reminisced about a time before technology. With Malcom Turnbull’s recent call for all states and territories to hand over their entire database of driver’s licences, it’s clear why. Our privacy is slowly but surely being eroded away. Under the pretence of national security, widespread facial recognition tech could very soon be a reality in Australia.

To read the full story, click here.

On Friday, Shae looked at the conflict between housing affordability and consumer spending. You won’t be surprised to learn that home ownership in Australia continues to slide among people aged 25 to 34. Just 45% of people in this age group own their home. Considering wages are growing at a measly 1.9%, we’re surprised it’s as high as that.

Part of the problem, we’re told, is that this cohort isn’t capable of saving, frittering their money on smashed avo instead. But we can’t have it both ways. Consumer spending, which accounts for 60% of GDP, is vital to the Aussie economy. Which means that for Australia’s young, it’s a case of ‘damned if you don’t, damned if you don’t’.

For more on this story, click here.


Katie Johnson,
For Markets & Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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