The global oil industry is constantly evolving and responding to changing demands and market conditions, which makes it fertile ground for potential investment opportunities — provided you know how to interpret data and investor sentiment.
Here are some insights into what drives and influences price movements and some suggestions on how you might be able to become a smarter energy investor:
Monitor the Industry Outlook
It seems that we’re approaching a watershed moment in the energy industry where there are changes in the way the world consumes and produces energy.
Solar power appears to have solid prospects of emerging as the world’s primary energy source. If that’s the case, then where does this leave the oil industry and what does it mean for markets?
Energy investors, and in particular oil speculators, have apparently become overcome with pessimism; this has resulted in a detrimental impact on most energy stocks.
There are several factors that are helping to contribute to the apparent gloomy sentiment amongst investors right now, such as relatively stagnant global economic growth, high oil inventory levels helping to suppress prices, and a certain amount of political uncertainty and instability.
Put all these things together — along with the realization that solar power is likely to be dining at the top table alongside oil as a major energy source — and it makes sense that investors might be wondering what happens next.
If you want daily insight on what’s happening in energy markets, there are sites like www.oilandenergyinvestor.com that issue forecasts and updates that could prove beneficial.
Watch the Reserves
Another useful data source is the US Energy Information Administration; they publish weekly inventory figures for the number of oil barrels currently held in reserve.
When you consider that current inventory levels increased more than five times original industry estimates, with reserves subsequently soaring to more than 500 million barrels, you can understand the bearish sentiment among investors.
But there lies the oil price paradox, as oil and energy prices enjoyed a subsequent general rise on the news.
If you’re an investor, you want to try and anticipate what’s going to happen in the immediate future and also predict what the long-term outlook for your investment play might be. Even allowing for an unexpected spike in the price of oil per barrel, the future of oil prices isn’t so positive for some analysts, who point out that shale oil producers and growth in solar energy could put sustained pressure on prices.
Be Prepared for Volatility
You would have to conclude overall that the US economy is in reasonable health right now with falling unemployment, strong consumer spending figures and rising house prices, three positive factors that suggest a recession is not yet on the horizon.
However, there appears to a growing number of financial analysts who seem to suggest that when you combine the current massive global oil glut with fears over unsustainable debt levels, oil prices could easily and quickly come under sustained pressure.
If predictions of an economic recession come true at some point, this will mark a tipping point that could very well create a sobering correction in oil prices.
Energy markets have always had an element of volatility that investors need to be prepared for and contend with, and that is unlikely to change going forward.
Return to Basics
Every investor has to make up their own mind on how to interpret the current data and market conditions, but when it comes to finding an investment edge it should be noted that some oil companies could be well positioned to reward stockholders.
Far too many oil companies were too dependent on triple-digit oil prices driving their profits, but as those halcyon days became a distant memory and the price per barrel plunged, it forced these oil companies to reposition and cut costs. So look for leaner, fitter and more-efficient oil companies that are now better-positioned to cope with competition and lower oil prices as a reasonable starting point when trying to work out your investment strategy.
About the Author: Zak Ford discusses the energy markets and why green energy is on the up and up. His articles cover the economy and where best to make investments for the future.
Photo Credit: Maartin Heerlien