We last looked at the Energy sector in our monthly article for last December and our blog post on December 31st, 2014. At the time, we suggested that North American hydrofracking oil wells were able to make money if the price of oil was between $40 and $80 per barrel. If the price of oil is over $80, almost every hydrofracking well is making money and running to capacity. If the price of oil is less than $40, no hydrofracking well should be running since they would be losing money. Therefore, the laws of supply and demand should act to create something like a natural floor and ceiling to the price of oil – keeping everything within a fairly predictable range for the medium term.
It’s been 8 months. How good has this prediction been?
Answer: Relatively good so far. For all of 2015, the price has hovered between $45 per barrel and $60 per barrel. At the moment, the price is just shy of $50 and future markets are lowering future expectations. Moreover, the Wall Street Journal is reporting extended futures trading (oil deliveries for 2022 and 2023) at $63 dollars a barrel. In other words, investors expect the energy glut to continue and the prices to stay low for a long time.