The Unstoppable Upwards Trend of Energy Prices
By Dan Dicker - Mar 07, 2014, 2:16 PM CST
No one at this point needs another column on the crisis in the Ukraine, the natural gas influence of Russian pipelines on Eastern Europe or speculation on the outcome of Russian military occupation and possible annexation of the Crimean peninsula. But I do want to point out what these unexpected events have done to the price of a barrel of oil -- it has sent it higher again.
The reason I make this obvious statement is precisely because the events in Ukraine were so unexpected. What it tells us -- again -- is that oil price risk remains consistently to the upside, and not only from geopolitical supply issues we think we know about, but particularly from those we have failed to consider.
I write week after week about the known supply and demand profile for the global oil market, try to assess the cost trajectory of getting the stuff out of the ground and figuring out where and how fast global growth for oil is coming from. And with all that, and with the certainly long-term bullish trend I see from all of that fundamental analysis, I just cannot ever predict the hundreds of other events, all of which can spike prices higher -- but seem to happen all the time.
This is why, when I look at the long-term prospects of the various sectors of the stock market, I like the energy sector so much. Even with the explosive growth of new oil shale resources that are only now getting fully exploited by the United States but will spread to many other nations in the…
No one at this point needs another column on the crisis in the Ukraine, the natural gas influence of Russian pipelines on Eastern Europe or speculation on the outcome of Russian military occupation and possible annexation of the Crimean peninsula. But I do want to point out what these unexpected events have done to the price of a barrel of oil -- it has sent it higher again.
The reason I make this obvious statement is precisely because the events in Ukraine were so unexpected. What it tells us -- again -- is that oil price risk remains consistently to the upside, and not only from geopolitical supply issues we think we know about, but particularly from those we have failed to consider.
I write week after week about the known supply and demand profile for the global oil market, try to assess the cost trajectory of getting the stuff out of the ground and figuring out where and how fast global growth for oil is coming from. And with all that, and with the certainly long-term bullish trend I see from all of that fundamental analysis, I just cannot ever predict the hundreds of other events, all of which can spike prices higher -- but seem to happen all the time.
This is why, when I look at the long-term prospects of the various sectors of the stock market, I like the energy sector so much. Even with the explosive growth of new oil shale resources that are only now getting fully exploited by the United States but will spread to many other nations in the next several years, there is an almost endless magnet drawing prices upwards, allowing oil companies to find better and better markets for their ever more expensive barrels.
You might perhaps be able to draw a similar analogy to healthcare as our lifespans continue to increase, requiring ever more complex and expensive drugs and medical procedures, although energy growth seems to me to be even more sure.
So here is the story for 2014, in case you missed it: Oil will cost more, on average, than it did in 2013, which cost more than it did in 2012, which cost more than it did in 2011. You'll see prices that are well above $100 a barrel where all the instantaneous risks in price will remain to the upside, from places you might expect and from many you cannot. And oil companies that are committed to proven and efficient production will be earning ever greater profits and will be one of the best, if not the best investment opportunities for 2014 and likely the next several years to come.
I'll get back to recognizing and analyzing more specific opportunities again next week (although for those of you who must have a stock idea today, look at Anadarko Petroleum (APC). But for this week, the important prism of Ukraine events is recognizing the unstoppable upwards trend of energy prices.
