Divining the Future Price of Oil
Much effort is put into forecasting the future price of oil. Of course, this forecast is both a function of production and exploration, but also driven from the demand side via global economic activity. Legendary oil trader Andrew Hall was one paid over 100 million dollars a year but did not appear able to maintain his prowess following the global financial crisis. Can anyone forecast the price?
Perhaps, as once opined by John Kenneth Galbraith: “Economists don’t forecast because they know, they forecast because they’re asked.”
While we don’t know many, if not most of the variables that one might use to forecast energy prices, we do have 2 items to note. First, the collapse in longer term yields in the US Treasury market, suggests a constrained environment for growth, and hence demand. Secondly, we know the marginal cost for extraction in the Texas oil fields continues to descend to levels that few comprehend. The marginal producers in Texas are profitable at $15.00 a barrel, and it is this price, that can be expected to weigh on the oil market.
New Economy Stocks
Many of the new economy stocks are taking a leisurely time before their IPO. Presumably, operating as a private concern for a longer time should allow these companies to develop healthy financials, not only at the top line but also flowing through to the very bottom line, known among old school investors as profits. Ride sharing company Lyft has recently deflated after an IPO that took a long and carefully orchestrated time in coming to market. Sales might sustain early investor interest, though the final buyers may well want to see an actual return on the bottom line.
Investors may wish to concentrate on old economy stocks, with not only products, but profits as well.
Source: Wall Street Journal
To review previous market perspectives, click the following links:
- Mega Health Insurers and Signals From The Global Bond Market
- Searching for Value in Front of a Recession
- Airlines, The Oil Market and The Quality Asset
- Crisis Events, Treasury Yields and Dividend Yields
