Oil is often referred to as the ‘black gold’ and as the central players in the energy industry, its importance can’t be overstated. While despite the dramatic upheavals in the world of energy in recent years, it continues to be the backbone of the world economy. As we know it, oil goes through a cycle of price swings, sometimes being a commodity with huge profit potentials, while at other times leading to losses and financial ruin.
Since late 2014, we have seen the prices of oil plunge from over $100 to as low as $26 per barrel at the beginning of 2016. Many energy companies faced bankruptcy, thousands of job losses, and some of the worst economic volatility since the Great Recession of 2008.
However, the well-seasoned investors know that whenever there is blood in the streets, as the saying goes, there is opportunity for profit. Based on this, many investors, including Warren Buffett, have made significant investments in energy companies during this period of low oil prices.
These investors understand that there is great money to be made if oil prices potentially reflate after some underlying market conditions improve. While this has been seen often during previous cycles of price shifts, the potential upside is likely to be even higher this time, as the prevalence of renewable energies has led to an increased demand for oil.
Moreover, there are other developments that indicate a certain degree of relief in the near future. For instance, the OPEC+ alliance have agreed on cut backs to production and are set to extend such restrictions until at least late 2021. This presents a promising outlook for oil prices with a potential upside of over 30%.
Additionally, technology is playing an increasingly important role in the oil industry. In recent times, we have seen newfound efficient ways of extraction and refining that have reduced the cost of production. This, coupled with higher demand, could lead to further price rises.
In conclusion, oil may have been tarnished in recent times due to low prices, but there are strong fundamental signs that point towards a market ripe for risk-seeking investors. As an investor, if you can identify opportune entry points, low risk investments that have the potential to deliver massive returns, it is evident that oil is still gold.
