Oil and Gas

Crude Oil Price Forecast for 2020

Today, we’re tackling the all-important question, “Where are oil prices headed in 2020?”

Now, I’m no psychic. But sometimes the answer is basic economics.

The world’s oil markets are dramatically affected by geopolitical events.

But in the absence of geopolitics, the price of oil – like any other commodity – is dependent on supply and demand.

My friend Rick Rule, CEO of Sprott U.S. Holdings, famously says, “The cure for low prices is low prices. And the cure for high prices is high prices.”

What does he really mean here?

When oil prices are low, producers cut back on production. Some even go bankrupt.

Those actions reduce supply. The speed at which supply is reduced can happen slowly or quickly.

Once supply is reduced, prices rise. Prices continue to rise until demand falls off.

Would-be consumers conserve to save some change through measures such as carpooling. This eventually reduces demand.

When demand falls off, prices do too. This continues until prices hit a level that increases demand.

And so the cycle continues…

But, again, geopolitics cannot be ignored.

Global energy markets were rocked last month when two of Saudi Arabia’s major oil facilities were attacked.

The kingdom lost more than 5 million barrels per day of output. As a result of the supply shock, oil prices jumped…

Chart - Oil Prices One-Year Performance

But Russia quickly stepped in by ramping up production and stabilizing the market

Brent, the international crude oil benchmark, is currently trading around $64.66 per barrel. That’s far below its one-year high of $86.07.

There’s just too much oil being produced relative to tepid demand. The slowing demand is in large part due to the global economic slowdown.

Saudi Arabia will probably call for deeper OPEC production cuts when the organization meets in December. On the surface, that should bring prices up.

However, U.S. production continues to ramp up.

At current crude prices, U.S. shale exploration and production companies are making money. And the global market is thirsty for their light, sweet crude.

So even more U.S. production is expected to come online.

Looking ahead to 2020, I don’t expect crude prices to head higher.

Russia has stepped into the role of the world’s swing producer. Saudi Arabia is getting its production back online. And the U.S. just keeps on pumping.

The brief pop we saw on panic last month might be the peak for a while…

Because no matter how you slice it, the world is still awash in oil.

I don’t see that changing anytime soon.

Good investing,