By Samuel Taube
On this week’s episode of Forward Guidance, Matthew Carr joins us again to discuss his contrarian bullishness on crude oil.
Matthew sees an upward trajectory for oil in the long term – though he acknowledges that the current glut will likely persist for a few months. He points out that India, sub-Saharan Africa and Southeast Asia are still industrializing. They are expected to add millions of barrels worth of crude oil demand in the next five or 10 years.
He also feels that the OPEC production-cutting deal will continue for the near future and will continue to support oil prices. Saudi Arabia needs to keep the deal together if it wants its upcoming Aramco IPO to go well.
Matthew’s long-term outlook on oil is bullish, but he does think it may slump lower in the next few months. That’s not an effect of geopolitics or global economics – it’s oil fundamentals in action.
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He explains that refineries – the primary consumers of crude oil – alternate between producing two kinds of gasoline throughout the year. There’s a heavily refined summer grade and a less refined winter grade. We’re currently at the height of summer gasoline season, when refineries are operating near capacity.
But soon, many refineries will scale back their operations to get ready for the winter. They’ll need to retool their machinery to produce winter-grade gas, and that process will temporarily reduce their oil consumption. That, in turn, could cause a short-term slump in crude prices in the second half of 2017.
But Matthew is quick to point out that lower prices are not necessarily a bad thing for investors. A crude slump in the second half would present a buying opportunity for the long term.
To that end, he feels that young people who are starting to invest for retirement should add an oil ETF to their portfolios. He sees the dividend-paying Alerian MLP ETF (NYSE: AMLP) as a reliable choice with less volatility than conventional oil stocks.
If you’d like to learn more about Matthew’s take on the natural resource markets, check out his contributions to Oxford Resource Explorer.
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Source:: Investment You
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