The global oil price which is a major determinant of the sales and revenue of any oil-driven nation experienced an unexpected decline, as the commodity decline to US$74.79 per barrel on Friday, falling from the $90 high compared to the previous month.
Andrew Lipow, the president of Lipow Oil Associates, a consultancy company based in the United States in a brief interview with BNN Bloomberg thought that the decline was a result of the excessive supply of the commodity. Lipo said.
“It is a sign that the market is oversupplied at the moment”
He further posited that additional oil from OPEC+ hit the global market while oil sanctions against Venezuela were lifted as the main reason the commodity is currently over-supplied. He said.
“You need to look no further than the price of oil being $74 for West Texas Intermediate (WTI), and a bit less than $80 for Brent oil, to conclude that OPEC+ will suspend their production cuts through the first quarter,” he said.
A senior investment advisor and portfolio manager at CIBC Wood Gundy, Andrew Pyle, suggested that in addition to the oversupply, the expected slowdown in the U.S. economy could push the demand for crude even lower, and believes prices for WTI futures might reach as low as $70, he said.
“It may be a tougher slog to get prices back up, and it may get up to $80, but I think getting back up to the highs we saw recently, north of $90, I think is out of the question for now.”
Andrew suggested that investors pick oil and gas stocks with strong balance sheets and excellent cash flows to weather the pressure and persist through heightened interest rates.
“If we’re going to get back into energy, then obviously we’re going to looking for fantastic cash flow, we’re going to be looking for solid balance sheets right now,” he said.
He is anticipating rates to stay higher for longer next year and is looking for large-cap energy stocks that can navigate that risk.
