By Zach Scheidt
This post What Happens When Oil Hits $100? appeared first on Daily Reckoning.
As I filled up my family’s Suburban this week, my 9-year-old was sitting in the back seat.
Usually, we make faces at each other while the gas is pumping. But this time, she was paying more attention to the pump. When I got back in the car, she had a question for me:
“Daddy, did we really just spend $75 to fill up mom’s car with gas?”
I could see the wheels turning in her brain. She was calculating how many frozen yogurts, beanie boo toys, and arcade tokens she could buy with $75.
“Do we spend that much money EVERY time we fill up with gas?”
This was quite concerning to her. And I didn’t quite know how to answer her.
“Yes sweetie, it takes a lot of money to drive mom’s car. But don’t worry, we still have enough money to get ice cream on Friday.”
Of course, higher oil prices — and the resulting higher gas prices — raise important challenges that our economy must deal with.
But even with U.S. oil hitting new 3-year highs right now, the problem may not be as bad as you think…
What Happens When Oil Hits $100?
Strong demand for oil is driving prices steadily higher. And if you think it’s bad here in the U.S., imagine living in Europe.
Brent crude (which is the European crude oil benchmark) is trading for more than $80 per barrel. That’s about $8.00 per barrel higher than the price for oil here in the U.S.
The growing global economy is creating plenty of demand for oil. And of course, when demand is high, prices naturally rise.
Last time oil climbed above $100 per barrel, it was tough for businesses and individuals.
Higher oil prices lead to higher energy costs for businesses. So running factories, paying for delivery vehicles, even keeping the lights and air conditioning on was more expensive when oil rose last time around.
You probably remember the sticker shock the first time you had to fill up your car with gasoline that cost $4.00 or more per gallon. That was a burden that cut into family budgets and even made it difficult for some people to make ends meet.
But in 2018 things are a lot different.
For one, businesses have much more efficient equipment. Thanks to tech advancements (made necessary by the last round of $100 oil), companies are able to get more done with less energy. And that means $100 oil won’t cause nearly as much financial pain for businesses.
At the same time, U.S. autos are much more efficient. So while higher gasoline prices certainly aren’t welcome, they’re not crippling for family budgets.
It also helps that jobs are plentiful, wages are rising, and the overall economy is very strong.
So today, higher oil prices aren’t nearly the challenge that they would have been several years ago. And even with oil edging closer to $100 every day, I don’t expect the stock market to back off as a result of higher energy costs.
The Economy Is Still Strong — So Don’t Expect Oil to Back Off
So where is the top for oil?
I would not be at all surprised to see oil get back to $100 here in the U.S., or even above $100 in Europe (where production is more limited).
The key factor driving oil prices higher is the strong U.S. economy. We’re seeing more demand every day for oil — which is the only reason oil could be consistently trading higher despite record U.S. production.
With oil continuing to move higher throughout 2018, now is still a great time to invest in energy stocks.
And I’m not only talking about the companies that produce crude oil.
Pipeline companies, refining stocks, distribution and oil transportation companies should all see profits grow in this environment.
This leaves us with a very wide assortment of attractive energy opportunities in today’s market.
Please make sure you’re taking advantage of these opportunities now while there’s still plenty of runway for oil to trade higher.
And for now, I’d be careful not to let the naysayers on the nightly news talk you out of your strong stock positions by telling you that higher oil will hurt the U.S. economy. After all, we’re much better equipped to handle this oil boom than we were last time around.
Here’s to growing and protecting your wealth!
Zach Scheidt
Editor, The Daily Edge
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