WTI Crude Oil futures are currently priced at 50.42 USD while Brent Crude Oil futures would trade at 58.80. Both oil benchmarks are down circa 30% from their recent peaks.
Are the current prices a near-term bottom? In my opinion, Yes. Why? Because the global economy is simply too strong in order for WTI Oil, for example, to stay at 50 USD. USA, Israel and Saudi Arabia are intent on containing Iran which is the fifth largest oil producer with the largest proven oil and gas reserves in the world.
If Iran oil deliveries are disrupted this could make WTI oil shoot up to 70 USD again. But my main thesis is that the global economy, although slowing down, is too vibrant at the moment to keep oil prices around 50 USD. What is more, even for the USA it is nice to have somewhat higher oil prices. Much of the gains in industrial output in the USA in the last 10 years are due to oil production. One of the most vibrant regions economically in the USA is Texas. People without college degrees could earn up to 100 000 USD a year in the oil industry. Houston and Texas constantly grow their populations due to the influx of people looking to earn higher wages and lead a good lifestyle. So, relatively higher oil prices from the current levels are good for almost everyone. There are strikes and protests against high oil prices at gas stations in various countries, but the economic benefits of producing more oil at higher prices are better.
I forecast that in 2019 WTI Oil and Brent Oil prices would go to 70 and 80 USD respectively.
This would make Russian oil and gas majors stocks go up substantially. Russian oil stocks and the Russian stock market are grossly undervalued at the moment. Yes, there are sanctions but the Russian population is well educated and the current wages make producing and exporting from Russia hugely profitable. The Russian economy has already adjusted to the new realities.
A rising oil price in 2019 would lift the sails of other large oil producing markets such as Brazil and Mexico.
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Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Kind regards,
Petar Posledovich
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