Oil has Boogie Fever

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The shale oil and gas revolution has made energy cheaper for U.S. manufacturers and spawned many high paying jobs. The recent drop in oil prices has caused the energy sector to cut back.

Oil prices are starting to attract the spotlight and whispers of $100 a barrel are being heard. Oil is an intricate dance between supply and demand with some speculation and positioning thrown into the mosh pit. Uncertainty regarding the Iranian sanctions to take effect in November and how much of their supply will be replaced by Saudi Arabia and Russia tops the list of supply concerns. Initially, OPEC and Russia seemed reluctant to boost production, but are now assuring markets that they will step in. Meanwhile, U.S. production is on track for record highs of 11 million barrels a day but has hit a few speed bumps with pipelines and skilled workers. We believe technology and CAPEX will be a game changer for the U.S. oil industry. On the demand side, higher economic growth is resulting in higher demand. But the recent rise in the dollar has made oil, which is usually priced in dollars, more expensive for international markets, threatening to dampen demand. In addition, here in the U.S., higher oil prices could cause consumers to pull back on spending although that is not yet the case. The trade war with China could also enter into the mix as a demand downer. Finally, oil futures contracts are constantly being traded by speculators and hedgers to bet on or lock in prices and can often shift prices. Wow, who said disco is dead? This is a complicated dance but at the end of the night, there is still a global oversupply of oil and natural gas which will limit the upside in the price of oil and $100 a barrel is not likely. The Global Perspectives forecast for oil in 2018 is about $70 a barrel.

Please follow U.S. rig counts on page 76 of the Global Perspectives book.

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