Low oil prices is certainly one of the biggest stories of the past six months.
Indeed, as the price of crude continues to drop, currently hovering just under a once-unthinkable $50 per barrel price, the issue is sure to be in the news well into the foreseeable future.
But the issue goes beyond simply lower prices, and it spawns some even bigger questions:
Are supply and demand really the drivers at work? Is it political warfare above all? How will global markets react when prices rebound?
One way or another, the implications of much lower oil prices are huge, and will impact markets, industries, and sectors across the board throughout the coming year.
All of which leaves investors wondering what to do next, and how to play this changing-by-the-day industry.
There's no time like the present to take a look at the potential pitfalls, and the emerging opportunities, that this disruption brings… and to let you know about a medium-risk way to play it for near-term profits.
The Benefits of Cheaper Oil
Light sweet crude oil prices recently dropped below $50. The last time oil was this cheap happened in the spring of 2009, after the stock market panic of late 2008.
Without a doubt, a surge in supply from North American shale production has boosted supply. On the flip side, global demand has weakened thanks to a feeble world economy, and the continued progress in global energy efficiency.
The Saudis are selling their oil at a fixed spread (discount) from benchmarks for a number of reasons. Most obvious is to maintain market share, but such low prices also hurt the highest cost producers, like the shale plays. The Saudis are forcing a lot of that supply to come offline, allowing them to step in and fill the void.
It's no doubt by design, too, that low prices hurt other high cost producers, like Iran – a long-time Saudi nemesis, and Russia – particularly out of favor with the West right now.
Politics are a big motivating factor, and as we examined in November, it was a successful strategy in the past.
In the near term, what this means for us consumers is cheaper gasoline, which has hardly gone unnoticed. But it also means cheaper fuel of other types, like natural gas and oil for home heating, as well as jet fuel for airplanes.
The biggest beneficiaries may end up being those in lower income brackets. RBC Capital Markets estimates the average American household will save some $42/month on gas this year should prices stay at these levels.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.