Where next for the oil? It's yesterday's news, surely?

If there is one asset class (type of investment) which seems to defy all price predictions, it is oil.  Every time an expert publishes a seemingly rational article, events seem almost bound to turn out differently.

Oil is not alone in this of course. Many try to predict the price of gold without success. However in the case of oil is not just the size of the error, it is also the direction that the experts seem to get entirely wrong!

Conventional wisdom gets turned on its head time and again. 

Whether it's prices hitting $140 per barrel in 2008, and apparently heading to one hundred and seventy (by December of that year they'd fallen almost 60% to $55); or US Fracking putting a lid on prices at $50 per barrel in 2017 (by June 2018 they were at $77); or predictions by the US Energy Information Administration that prices in 2020 would be around $59 per barrel, near where they had been through most of 2019: by April they'd gone negative for the first time in history!

So what are we hearing now? The resounding theme through recent months has been that Governments are finally getting serious about climate change, and will use the rebuilding of the post-COVID economies as a kind of "Green Revolution". 

Que huge increases in the asset values of all things connected with green energy and endless talk of oil majors being stuck with "stranded assets" (oil reserves that they'll never be able to exploit due either to regulation, demand, market price, or a combination of all three). The likes of BP pledging to once again move "Beyond Petroleum" and be carbon-neutral by the mid century.

So oil is therefore a loser. Better to get on the electric bandwagon and profit from the future then?

In the long term, the answer is almost certainly "yes". But as one wag once said: "in the long term, we're all dead anyway!" What about the here and now?

Well since October last year the direction of the oil price, despite all the negative noise and predictions, has been relentlessly upwards. From $36 to almost sixty. How can this be? Perhaps a couple of points have been forgotten in all this doom-mongering.

Firstly, if you were in charge of an oil major with the world all turning Green and COVID crippling demand for your product, would you splash out on finding and exploiting new reserves? Me neither. 

Secondly, what are you going to use to build all this new green infrastructure? That's right: lots of cement, iron and oil.

So instead of waning demand and a steady decline in value, the oil price is enjoying a continued resurgence! This is very well explained in detail in this article from the UK's Telegraph newspaper.

All investment is a gamble. No one can be an expert in every sector. So investors must rely on those who are (or seem to be) well versed in a particular field. I for one have long since learnt that, on balance, oil is just too much of an unaided gamble for me to invest! 

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Disclaimer: This communication is purely meant as information for general interest. It is in no way to be taken as financial advice or relied upon in any way for investment decisions.