Turning on the TV, you’re likely to see lots of “analysis” about where oil will head today, tomorrow, maybe this month.
But for longer-term investments, what’s more important is the long-term trajectory of oil prices.
And the picture there is looking rosy, because despite the U.S. shale boom, oil supply looks set to drop.
A key factor is Venezuela. Currently producing about 2 million barrels of oil per day, the country produced 3 million only eight years ago.
Production is set to drop even faster, as protests, riots, looting, and a constitutional crisis continues to grip the country.
Even if all that was solved, the Venezuelan state oil company PDVSA would still be dealing with decades of corruption, under-investment, and use of company profits to fund social programs.
Not to mention that Venezuela’s financial problems mean PDVSA is having trouble funding the necessary processes to turn its sulfur-rich oil into something that can be more easily be sold on global markets.
In short, both the country’s oil fields and its politics are a mess – and oil production could drop as a result.
And that’s even before we get to the lack of new oil discoveries…
According to the International Energy Agency (IEA), these have reached their lowest level in seven decades – just 2.4 billion barrels were discovered in 2016, compared to an average of 9 billion every year for the last 15 years.
Low oil prices and the resulting under-investment in exploration are the cause.
But the opportunity here is amazing. Because once demand – which is growing at 1.2 million barrels per day – eats through current supply, oil prices are going to shoot up…
And so will select energy investments.