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Late in the summer of 2016, I predicted that crude oil prices would be in the mid-$50s by the end of 2016, and the low $60s by the first quarter of 2017.
And at the start of the week of Dec. 12, 2016, West Texas Intermediate sits at just under $54. Frankly, I'm not seeing anything in the market that would force me to revise my forecast right now.
But make no mistake: There is a change underway right now that will only accelerate in 2017. The "rising tide" of crude prices will not "lift all boats" equally. I'm predicting that investors will see some big shifts in the oil markets and where their profits come from.
You see, the source of global oil demand itself is refocusing, and that's where we'll see the biggest changes.
Some players will lose out: The traditional high-dividend "supermajors" - BP, Chevron, ExxonMobil, Royal Dutch Shell, Total SA, Eni, and ConocoPhillips - will see their long-term viability and short-term profitability severely challenged.
But nimble, globally oriented oil investors could see some of their biggest profits yet in 2017 from the places I'm about to show you...
Big Oil Serves Up Dividends Now, Disappointment Later
The case for investing in oil supermajors has always been their high dividends and the low chance that they would be lowered any time soon.
"After all," the thinking went, "demand for oil isn't going anywhere, so these companies will keep making money forever, right?"
That's the theory.
But in practice, the oil supermajors have for years been interested only in extremely expensive megaprojects that take years to finish and often only make sense when oil is close to $100 per barrel.
Just look at Canada's oil sands, deepwater offshore oil in Latin America, Shell's repeated attempts to drill for oil in the Arctic, or Exxon's attempt to get in on Russian oil fields.
To make matters worse, Big Oil has a horrible track record of actually finishing these projects.
As Chevron itself admitted in May, between 2007 and 2014, only 8% of the supermajors' projects ran on time, stayed on budget, and achieved the production target.
Just 8%.
And then, of course, came the 2014 oil crash, when prices ultimately plunged from close to $140 per barrel all the way down to the $20s, at their early 2016 lows.
Prices have rebounded, but all too late to do the supermajors much good.
They're all losing money, and to preserve their dividends to shareholders, they're selling assets and taking out loans. Take a look at the sidebar at right and see for yourself.
Now, this may give them the money they need to pay out their dividends in the short run. But in the long term, each one reduces how much money they make in the future.
Once oil prices recover, these supermajors will find themselves making less oil and natural gas than during the price slump, after having sold assets at the bottom, which is of course the exact opposite of what you want.
And in 2017, things will get even worse for Big Oil... but, as I said, much, much better for nimble, globally oriented investors and traders.
Let me show you what I mean.
Here's Where 2017's Biggest Profits Will Be Had
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.
Excellent Reporting!
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