At the beginning of this year, there was hope that the natural resources market—particularly oil, would rebound. Oil was sitting around $54 per barrel in December, up from a low of $27 per barrel in January of 2016, and appeared poised for a rebound. But that rebound has yet to materialize.
In fact, the price of West Texas Intermediate Crude has experienced a rollercoaster ride this year, with a marked decline over the past month, down to $42 per barrel near the end of June.
A recent article on CNN Money noted this trend as well:
Just six months ago, many on Wall Street thought $60 oil was a slam dunk. That turned out to be a terrible bet.
Crude oil prices plunged to $42 a barrel [in June], sinking into a bear market amid renewed concerns about a massive supply glut that just won’t go away. Some even feared a return to the sub-$30 prices that spooked global investors early in 2016.
Of the major alternative asset classes, natural resources has been hit the hardest over the past few years. We’re hopeful that oil prices may soon reach a bottom and begin rebounding to profitable territory. According to the CNN article, some in the industry feel the bottom may be near.
But there are signs that the notoriously-moody oil market may have gotten a bit too pessimistic.
Edward Morse, global head of commodities research at Citigroup, believes the worst may soon be over. “A bottom in the oil price is likely near,”
Rob Thummel, a portfolio manager at energy investment firm Tortoise Capital, expects demand for oil to rise during the summer driving season when Americans take more road trips — and use more gasoline. “Ultimately, I don’t see oil going into the $30s — and if it does it’ll be very short,” said Thummel.
The article also points out that any rebound will be slow and gradual.
Yet few are calling for a speedy return to the higher prices that many investors bet on last fall when OPEC and Russia moved to rescue the oil market by cutting production. Before that, OPEC, led by Saudi Arabia, had been pumping away aggressively in a battle to regain market share lost to U.S. shale producers.
By agreeing to dial back production, OPEC seemed to be acknowledging that its strategy wasn’t working.
OPEC’s production cuts haven’t fixed the oil glut either. U.S. crude stockpiles are higher than they were before OPEC slashed production in November.
Citigroup warned that some big investors who were banking on an oil rebound last fall may hesitate to do the same this time.
“The fund community has been burned so badly as to reduce the likelihood of them jumping back in no matter what the fundamentals,” Citi’s Morse said.
Opportunities Even Now?
Despite the bear market in oil, we expect that you can still find opportunities to invest profitably in natural resources this year.
However, we highly recommend that you engage with a wealth management advisor that knows that sector well and can guide you to opportunities that fit within your risk comfort zone.
We’re here to help as well. If you have any questions about natural resources investments, or alternative investments in general, we’re happy to provide you with answers that lean on our 40 years of experience. Just click here to submit your question today.