In the Dec. 25, 2013, issue of Energy & Income Advisor, Commodity Price Outlook for 2014, we made the following prognostication:
With North American production of light sweet crude oil on the rise, investors should gird themselves for bouts of volatility that could entail a short-lived drop in WTI [West Texas Intermediate]—potentially to less than $80 per barrel.
At the time, we didn’t foresee a selloff as severe as the one that rocked the industry last fall; rather, we thought oil prices would come under more pressure than usual during periods of seasonal refinery outages.
We also worried that surging US production eventually could overwhelm domestic refiners’ capacity to process volumes of light, sweet crude oil.
But we still took steps to reduce the Portfolio’s risk, cashing out of SeaDrill (NYSE: SDRL) in fall 2013 and selling fracking sand specialist Hi-Crush Partners LP (NYSE: HCLP) in spring 2014 for a roughly 60 percent gain.
We also reiterated our Sell call on SeaDrill, a stock we first highlighted in 2007, on several occasions in 2014 and added American Airlines (NSDQ: AAL) to the Model Portfolio as a hedge against lower oil prices in January 2014. (See Why SeaDrill Still Rates a Sell, Five Myths about SeaDrill That Could Cost You Real Money and Buy the Friendly Skies.)
Last fall, we warned that the price of West Texas Intermediate (WTI) crude oil could slip to as low as $40 per barrel in early in 2015 and that further loosening in the supply-demand balance could depress prices to as low as $30 per barrel.
Although WTI hasn’t pulled back to this nadir, our forecast—reiterated in numerous issues of Energy & Income Advisor—for crude-oil prices to remain lower for longer has more important implications for investors.
Our outlook calls for WTI price to range between $40 and $60 per barrel for most of 2016—a forecast that we’ve reiterated numerous times during our monthly Live Chats.
Crude-oil prices enjoyed a brief relief rally from mid-March to early May, fueled by profit-taking and higher refinery utilization rates in anticipation of the summer driving season, a period of peak demand.
But elevated inventory levels in the US and the prospect of refinery outages for regular maintenance and upgrades has sent WTI lower in recent weeks.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on Sep. 30, 2020
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