As I write, the price of Crude Oil has dropped another 4% today or over 40% over the last six months. At this pace, it should less than $10 per barrel in a short two more years. If we correlate today's gasoline price to this same rate of decline, then gas may land somewhere around 50 cents a gallon à practically FREE! Of course this seems unlikely, but one never knows.....hmmmer?
Well before you go order your Hummer, it's important to remember that crude oil, like all other commodities, has experienced, and will continue to experience wide price swings in times of oversupply or shortages. These supply side conditions are not only dependent upon worldwide supply but also speculative supply (what's projected in the future). This is further complicated by speculation of demand which is impacted from a variety of things including wars (conflicts), political embargos, as well as economic cycles and even the weather. Like this latter example, they all can change quickly.
What may be lost in this midst of this current downward price swing of oil, isn't our understanding of the magnitude of change nor commentary and best guesses of how low prices might go (especially at the pump), but what seems to be overlooked is one particular main cause of the current oversupply. Unlike the causes we hear about every day on the news, like slowing economies, or Embargo's (i.e. sanctions), or OPEC limits (or lack thereof), or conflicts in middle-east, this time another significant cause is mainly driven by us, the United States! Now, for a change, it's not because the Big Bad United States is manipulating markets or currencies to affect this change. Neither is it because our economy is in recession putting a damper on the demand side. Nope. This time, it is because we have just launched our domestic Oil Production from 5 million barrels per day in 2008 to over 9 million barrels per day today. Further its expected we will surge to over 13 million barrels per day by 2019 à surpassing Saudi Arabia and Russia along the way, becoming the world's top producer of oil.*
Why this is important isn't just because we are quickly becoming energy independent (and we are), nor because of all of the jobs (+60% increase since 2010**) and growth to our economy the oil boom is creating. While these are important, what's missing from the evening banter with family and friends is the enormous shift of leverage, and responsibility holding this leading role brings. Imagine how the world dynamics may change if the oil in the Middle East or Russia or Venezuela just didn't matter as much?
Caring for this responsibility, to make the world a better place, is the opportunity ahead.
Pete Thoresen
Financial Advisor
Focus Financial Network, Inc.
1000 Shelard Parkway, Suite 300
Minneapolis, MN 55426
952-225-0344 direct | 952-591-9770 main office
* Source: www.eia.gov | Bloomberg, July 4th, 2014, "US Seen as Biggest Oil Producer....."
** Source: Bureau of Labor Statistics
Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Insurance and investment advisory services offered through Focus Financial Network, Inc., a registered investment advisor not affiliated with Royal Alliance Associates, Inc.
