Crude oil prices were have hit a two-year highs. Despite the misgivings of some pundits who view oil simply as a means for making money from short plays, the global market has finally stabilized.
That means we’re now in the perfect environment to make some nice money with the presence of two crucial ingredients: a degree of predictability and low volatility.
WTI posted a price above $57 on Tuesday morning, with the consensus now forming that the next resistance level may be around $59.
Meanwhile, Brent (set daily in London and the more globally used of the two primary oil benchmarks) is trading above $63, higher than my predicted range for December 31 of $58-$60 a barrel.
This means that my next estimates – for what the market will look like at the end of the first quarter of 2018 – will forecast a higher price.
I expect the movement to continue incrementally. Each new ceiling provides its own resistance, especially when improving profitability entices additional production from significant surplus reserves.
Nonetheless, there are two essential reasons why the price improvement is taking place, both of which we’ve discussed on numerous occasions here, and both boding quite well for investment returns in the sector.
Oil Supply Surpluses Can Be a Good Thing
First, the elusive, long-awaited balance in the market is here.
As I have previously remarked, such an equivalence between supply and demand does not mean the oil market is moving into a “just-in-time” situation.
This has been a recurring and popular strategy to minimize costs in a range of manufacturing and delivery venues. The idea is that you only make and ship what’s needed when it’s needed, to avoid having to pay for large warehouses and manage inventory.
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