The year 2022 has proven to be full of surprises for common people as well as the global economies. The world has been hit hard by oil price hikes and the situation stayed really bad for several months.
To make things worse, Russia started a war with Ukraine, which hiked the oil prices to record highs. Finally, the situation has started coming under control a bit but is it going to get better or worse?
Smead Capital Management’s Take on Oil Prices
Smead Capital Management’s chief investment officer (CIO), Bill Smead has shared his analysis of the oil markets. He has taken multiple factors into consideration before coming to his conclusion.
According to Bill Smead, it is quite obvious that the oil prices have experienced a sharp fall since July. However, the main ask is whether the fall is going to stay permanently or if it is temporary.
He has proposed that there is a high possibility that the oil prices may experience yet another spike. Therefore, it would be wise for investors to buy oil stocks before oil prices are hiked.
Energy Stocks are Not in Demand
As per Bill Smead, the stock prices for the industry are attractive when volatility is expected in their values. However, the energy stocks are high and they may remain there for a long time.
There is a high possibility that the prices for the energy stocks may continue rising higher, which may not be an attractive investment.
Hike in Oil Prices
On the other hand, the oil prices are down at present but they are expected to surge at a substantial rate. The upward movement of oil prices would be a great spectacle for the investors and an opportunity to increase their gains.
Smead stated that as per his analysis, the recent dip in oil prices is a natural correction. It is proving to be a significant correction in the prices of oil at present.
The correction is for the bullish hike that was recorded in oil prices in the spring of 2020.
From spring of 2020 until the first half of 2022, the oil prices rose from $20 per barrel to $120 per barrel. The Russia-Ukraine conflict managed to hike the prices even higher.
People’s Perception vs. Actual Build-up for Oil Price Hikes
Smead stated that people want to believe that the fall in oil prices is a permanent thing. They want to believe that the inflation rates will start lowering now that the oil prices have dipped.
But the reality is that the US had to use the strategic reserves of oil to meet the customers’ demand, which has lowered oil prices. The US had 180 million barrels of oil for the purpose.
Now, the figure has lowered and the US will have to build up the same stock again.
Then comes China, which may be facing lockdowns in several areas but the situation may change for the country soon. Once China is done dealing with the pandemic and lockdowns are lifted, the demand for oil will rise.
This will eventually hike the oil prices and may push them over $120 once again.