Tags: DiLallo | oil | price | supply

Motley Fool's DiLallo: Oil Prices Might Snap Back Quickly

By    |   Monday, 22 December 2014 10:19 AM

Oil prices have dropped to a five-year low, plunging 47 percent in just six months, but fundamentals could push them back up quickly, says Matt DiLallo of The Motley Fool.

Without any action by OPEC, the global market will face oversupply of 1 million to 1.5 million barrels of oil per day next year, he writes in an article for The Motley Fool. "However, the supply and demand situation could shift the other way rather quickly, driving the price of oil back up before too long."

Demand wouldn't have to rise much to erase the glut, DiLallo argues. "Just maintaining the current global demand growth trajectory would require 7 million additional barrels of oil per day of supply by the end of the decade."

Falling oil prices themselves may spark demand for energy, as consumers see gasoline prices fall, he writes. Regular gas sold for $2.41 a gallon Sunday, down from $3.24 a year ago.

On the supply side, "if not for surging U.S. oil supplies, we'd probably be in a whole lot of trouble, as global oil supplies from several key producing regions have steadily fallen," DiLallo notes. And that dynamic should continue, he says.

"Right now, the oil market is oversupplied by about 1.5 million barrels of oil per day. However, that glut of oil should be sopped up by demand growth very shortly. Meanwhile, supplies around the world are declining, and could fall further due to lower oil prices. This all suggests the plunge in oil prices could be short-lived; supply and demand could flip faster than anyone expects."

Meanwhile, Blackstone Group CEO Steve Schwarzman says the oil price decline offers attractive investment opportunities for the world's largest private equity firm.

"With a huge decline, there are going to be a certain number of companies under real stress, and that presents a very unique window," he tells CNBC.

Schwarzman isn't worried about overproduction of oil. "Like most commodities there's less of it produced at a certain point as the price goes down, and then things will normalize," he states. "Then the consumption of the world going up over time will result in prices going back again on the higher side."

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Oil prices have dropped to a five-year low, plunging 47 percent in just six months, but fundamentals could push them back up quickly, says Matt DiLallo of The Motley Fool.
DiLallo, oil, price, supply
365
2014-19-22
Monday, 22 December 2014 10:19 AM
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