Life Is Not Back To Normal

Oil Stocks Have Changed

Oil firms have changed dramatically compared to 5-7 years ago which is bullish for oil. Many investors don’t trust oil firms to limit their production to avoid flooding the market which lowers the price of oil (which is counterproductive). That lack of trust along with the worries about the environmental impact of burning fossil fuels is constricting production growth. Investors want dividends, not capex growth. Companies don’t have a choice. Investors control their decision-making. They can’t produce as much oil as possible. Energy has become a short-duration play.

As you can see from the chart below, energy firms have slashed their capex in the past few years and have maintained their dividends. In theory, if WTI oil heads towards the mid-70s, we could see dividends increase and capex remain steady. Oil production is definitely going to increase in the next 6 months, but not in line with demand.

We are very close to inventories reaching normalcy. In theory, low inventories and spiking demand should be bullish for the price of oil. Maybe it can get above the mid-70s. Specifically, US product inventory excluding the strategic petroleum reserve is 1.276 million barrels (as of March 26th). In mid-March 2020 right before the pandemic, it was slightly above 1.25 million. We should see oil prices react this summer.  

Housing Becoming Less Affordable

The housing market has become less affordable due to higher prices. The expensive prices on the coasts along with the pandemic encouraged people to move inland to more affordable areas. This has made it more expensive to buy a house in lower-tier cities which is making inhabitants very angry. Incomes are lower in these cities which means people from California and New York are pricing inhabitants out of the market.

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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