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Are Oil Profits Evaporating From The Market?
BY HARJE RONNGARD - 30/01/2018 | VIEW MORE ARTICLES BY THE DAILY RECKONING

Late last year, OPEC (Organisation of the Petroleum Exporting Countries) said they would continue to limit oil production throughout 2018.

For now, they’re sticking to their word.

Countries like Russia and Saudi Arabia have continued to limit inventories this year. And the lack of supply is driving oil prices up across the globe.

Brent Crude (top) has already passed US$70 a barrel. WTI Crude (bottom) is not that far off that mark either.

oil price

Source: Bloomberg

Hedge funds are also manipulating the market. With millions to put to work, they are taking on speculative oil bets.

According to Bloomberg, speculative positions on crude oil have soared in recent months. Fund managers are now net long more than a billion barrels of oil.

 

Brent futures and options

Source: Bloomberg

As oil prices rallied hard towards the latter end of last year, those invested in oil stocks made a tidy profit.

Individual oil picks like Beach Energy Ltd [ASX:BPT] climbed as much as 134% in the same time frame. But will we see any more of those oil profits in 2018?

Find a stable producer

Last year, hundreds of oil stocks rose on the assumption of higher earnings. But because oil is so volatile, it’s extremely hard to predict what will happen next.

Will oil keep climbing, causing stocks to rally further? Will oil prices remain the same, causing some investors to sell out of the recent momentum oil stocks have experienced? Or will oil prices fall from here, causing investors to sell out of oil and move onto something else?

You could say it’s dangerous to venture into oil now. Many expect oil to remain flat. Meaning there’s little reason for oil producers to continue their climb.

Yet that’s not to say you shouldn’t invest in oil if you find a compelling investment. Even if oil prices were to come down, finding a low cost producer could be a great investment over time.



View More Articles By The Daily Reckoning

The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



 

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