Oil may be at $50 a barrel today, but don’t expect that to last.
According to industry insider and long-time investor Henry Aldorf, one small hiccup on the geo-political scene could send the price right back to where it was before, if not higher. With Vladimir Putin now appearing to be trapped as his economy and currency collapse, Aldorf says we really can’t predict what he may do. Moreover, the global surplus in oil is just a million or two barrels out of a total of about 90 million barrels consumed daily. With many companies now being forced to close their operations because of costs and even some of the world’s larger producers looking at pausing projects, a supply crunch may be on the horizon in the very near future.
The fall out, of course, will be higher prices for everyone.
You never know what he’s going to do or how he’s going to react… If Putin does something in the Middle East or does something in Libya that oil price could shoot right back to $100. Because that oversupply is not that thick.
I think oil is going to be up [in 2015] because I think these low oil prices will have worked through the system. It means some of the shale producers in the U.S. will not produce… the very high cost ones will be lobbed off. I think demand is going to go up next year.
Aldorf lives in Asia and is the Chief Executive Officer of Terra Nova Energy. In an interview with Future Money Trends he shares his experience and insights on a variety of issues that will have direct consequences in the real world. Oil is the fuel that keeps the entire global economy firing. Wars are being fought over it. Entire countries are being destroyed over it. And every single individual on the planet is in one way or another affected by its price.
(Watch at Future Money Trends)
The guys who are at the higher marginal costs are all struggling… If you are not a low marginal cost producer you cannot play very well this oil game… You’ll have ups and downs and you’ll be shut down for some time and you have to wait until the next run in oil prices comes again and then you can’t produce… And you don’t want to be in that position.
But plenty of companies in the United States and the rest of the world are. And with oil at around $50 at the time of this writing and perhaps going lower in the very near term if the Saudis are to be believed, we are going to see a shakeout in the market. As producers go offline, and keep in mind that even some of the big oil producers out there are now contemplating shutting down operations because of costs, then supply is going to drop. This, as you may have guessed, is going to lead to rising oil prices, as it will be some time before the producers who went offline are able to acquire the funding necessary to get their operations back online.
You didn’t really think they were going to let us enjoy cheaper gas, did you?