Why We Could See An Oil Price Shock In 2016
The depletion of old oil wells is expected to surpass new sources of supply in 2016, as the ongoing oil price slump puts a long list of oil projects on the shelf.
Bloomberg flagged new data from the Norwegian consultancy firm Rystad Energy, which predicts that legacy production will tip the supply balance into the negative in 2016 for the first time in years.
Rystad Energy estimates that the crash in oil prices has cut into upstream investment so severely that natural depletion rates will overwhelm the paltry new sources of supply in 2016. Existing fields will lose about 3.3 million barrels per day (mb/d) in production this year, while new fields brought online will only add 3 mb/d. This does not take into account rising oil demand, which will soak up most of the excess supply by the end of the year.DYI Comments: When oil prices will pop back up in price is any one's guess. Could prices go as low as $10 to $20 dollar range as Gary Shilling has stated. If the world wide economy goes bust then that is a very distinct possibility. If that were to occur then lump summing into the closed end fund Adams Natural Resource Fund symbol PEO would set you up for profits a few years from now. Oil prices at that level would be on the give - away - table.
How much should be allocated to non dollar assets? Currently 13%. Don't forget gold stocks, they have been decimated, setting up profits a few years from now. Our favorite is Vanguard's Precious Metals and Mining Fund symbol VGPMX. The chart below speaks for itself. Prices have been decimated presenting a great buying opportunity for the contrarian value player.
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