Oil; it's all over the news, in papers, and it's a topic of conversation even between people who wouldn't know a Sweet from a Sour.
Below, I will present a series of arguments (with counter-arguments where suitable), such that the reader should be able to form their own balanced view on this potentially lucrative opportunity.
First, lets see the damage:
This is quite evidently a large and sustained decline in Oil price (here we are looking at WTI specifically).
The two main questions you should be asking are:
How much lower can prices go?
How long before prices will begin heading upwards?
Whilst I cannot give you either in explicit form with confidence (anyone who can is blatantly lying!), what I can do is run you through the factors which I consider build up the bigger picture.
I am aiming to build a picture which should shed light on where we are likely to head in the future. Whilst I can have relative confidence in the direction, the timing is a totally different beast, and therefore I shall instead discuss varying strategies to approach it with.
History does not repeat but it does rhyme - Joseph Anthony
In the chart above (please note logarithmic axes), I have plotted historical prices of oil (WTI). We see that oil has been below $30bbl for the most part of 1991 - 2004. Whilst this may strongly support the bearish view of increasingly low and sustained prices in oil, I must draw your attention to the blue line. The blue line represents global GDP, which has been upwards trending for the most part since 1991, apart from the 08' subprime crisis. I believe this implicitly paints a portrait of a world requiring increasingly large quantities of energy, but I will tread carefully and not claim this shows a 'fair price' of oil (which it most certainly doesn't).
