The unpredictability in oil price fluctuations is leading some analyst to investigate past price swings in more detail. This comes as Wednesdays prices returned to recent lows that have some strategists saying they are unsustainable. Unfortunately, the oil spike that took place just a couple of days ago has not reassured anyone in the industry.
The current price of the commodity is causing investors to wish they could be in 2014 when oil was $95 a barrel. Since mid-2014, the price has dropped a record 60 percent. It is this drop that is reminding investors of the fall that occurred during the global financial crises in 2008. As of right now investors are looking at a trading price of $48.90 for Brent crude oil. The U.S. is facing a 2 percent difference in price for crude oil that is at $44.40 a barrel. Of course it has an effect on the consumer dramatically. HSBC estimates that the wealth transfer from exporter countries to consumers is $2.2 trillion annually.
So the question that analysts and strategists are being frequently asked is, can this commodity continue to fall in price and still be able to sustain itself? Unfortunately, there is not a positive answer to this question. Analysts from HSBC have gone on record stating that they foresee a slight increase that will not recover losses. They are forecasting a rise to $55 for the remainder of the year followed by $60 in 2016. Despite HSBC’s forecasting, they are currently recommending investors to go overweight on energy stocks. According to the firm in a statement released, “it (energy) is the most unloved sector globally, relative valuations are at 20-year lows, earnings expectations have halved, and HSBC sees a gradual move higher in oil prices…as non-OPEC supply falls.”
These analysts were also quick to say that the underperformance, which is currently being experienced in the marketplace, isn’t the worse that has hit the industry. It is true however that this sector is not seeing a lot of love globally speaking. This is why most investors are underweight for this sector. Also, it seems that non-OPEC producers are making cuts in production since it is no longer cost effective due to the current price of oil.
Data from the U.S.’s Energy Information Administration combined with a change in production quotas from OPEC also will help. However, the current trend of supply and demand does not seem to be changing despite poor global economic growth. One only has to look at the recent anxiety in China for evidence of this. While in the past panic in the Middle East and Russia usually has an impact this does not seem to be the case now. The bottom line is that there is little room for optimism among analyst and strategists in the current market.