Commodities & Currencies
Anyone who thinks oil prices are headed higher is misguided. Most experts agree that the future for oil is not bright at all. While there may be short-term rallies in the near future, the long-term outlook is very bleak. This is driven by three primary factors. Firstly, US shale will keep the market oversupplied for some time to come, secondly electric vehicle demand will grow, undermining oil, and thirdly, emerging market demand will not stay as robust as it has been (solar and electric vehicles are growing there too), taking away a fundamental growth driver.
FINSUM: The writing is on the wall for oil, and in our view, even near term prices are likely to stay weak because of the competitive and over-supplied market.
Oil has been struggling for the last two and a half years, but has dipped back into one its truly dark periods over the last couple months. Now, it also appears to be waking up to the very real threat of electric cars. In the last year, major oil companies and groups, including Exxon and OPEC, have rapidly scaled up their forecasts for the amount of electric cars that will be on the road in coming years. OPEC, for instance, quadrupled their expectations to 12 percent of all cars on the road by 2040. Some groups put that figure at closer to 33%.
FINSUM: Speaking generally, estimates for how quickly the electric vehicle market will grow vary widely, but one thing is clear—they will have a very material impact on the fossil fuel industry.
Raymond James took a page out of the president’s playbook in trying to explain the bear market currently occurring in oil. The firm argues that a lot of the current weakness in oil is not due to realities in the oil market, but rather bad or false reporting of headlines that have driven investor perceptions into the gutter. Raymond James presents 10 common headlines that have recently been published, all of which are both bearish and false.
FINSUM: So the common narrative of OPEC cuts being undermined by shale is false? Weak reporting or not, we disagree here. The overarching issue in the oil market is that oil reserves are abundant, getting it out of the ground is constantly getting cheaper, and the market is less consolidated, and thus more competitive, than ever.