Analysis: Oil Prices

March 10, 2017
 
 
 
 
 
3:15
 
 
 
3:15
 
 
 
 
 
 
 
 
 
 
 
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 This week West Texas Intermediate hit $49. We've seen a 7% sell-off in the price of oil. What's going on? What does it mean, especially for The Woodlands, Texas? Hello, my name's Paul Carroll, and I'm the CEO and founder of Efficient Wealth Management, a boutique wealth management firm based here in The Woodlands, Texas. Why is West Texas Intermediate back down in the 40s? What's going on here? US crude stocks are now at a new record high. US production has rebounded phenomenally quickly. There are 500 rigs out there. Nobody thought we'd see this kind of rig count. OPEC is struggling to get its members in line, and shale production, which is highly variable, has been very adaptive to price rises and price falls.

 

How is this impacting us? The major producers are seeing their bottom lines hurt by these lower prices, of course. The service providers, they've had too much work lately. This is, if anything, going to provide a little breathing space, assuming the production growth slows down a little bit. The public is going to enjoy lower costs. Lower energy costs are like a tax cut to the economy. The economy is already running at full capacity, so this could actually improve the odds of seeing interest rates climb in the next few months. Very hard to forecast, though.

 

The oil and gas and coal industry, though, is entering a new era, and it's a very interesting one. There's a period of future uncertainty that will be nothing like what's been seen in the past. If, as we expect, we see a reduction in global trade, and new trade barriers are put in place, this is going to reduce the rate of global economic growth, and that's going to reduce the demand for energy. At the same time that that's going on, technologies are reducing the cost of electricity and providing new energy sources at an increasing rate.

 

Moore's Law has affected silicon in a new way. Now we're seeing solar panels become both more efficient, and stunningly less expensive. Wind farms are being located offshore that actually are producing energy at prices that are competitive with many of the old fuel sources. We're looking at a future where oil, gas, and coal are seeing increasing competition from other resources. At the same time, there's a possible continued slowdown in global growth. This is not all good for the oil and gas industry. It's almost guaranteed to be bad for the coal industry, but it is good for the consumers. We wish you the best of investing success.

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