Sunday, May 17, 2015

Historic oil price recoveries after big declines


Back in March I shared the fact that Americans drove a record 3.05 trillion miles on U.S. highways in January 2015 for the 12-month period, with even more expected this year. Now the International Air Transport Association (IATA) revealed that international passenger traffic in March rose 7 percent from the same time a year ago. Except for Africa, every region around the globe recorded year-over-year increases in air traffic.

Last week, West Texas Intermediate (WTI) crude oil prices reached a 2015 high, rising above $60 before cooling to just below that. It marked the eighth straight week of gains.
Investment banking advisory firm Evercore makes the case that the recent oil recovery is closely following the average trajectory of six previous cycles between 1986 and 2009. Although no one can predict the future with full certainty, this is indeed constructive for prices as well as the industry.

Frank Holmes is the head of US Global Investors and the website for his funds is chalk full of great information and insight. As can be seen by the chart above this most recent decline in oil prices is tracking consistently with the average of previous declines. The dates on the bottom are off by one year and is a mistake. However it appears this time will not be different. Oil is a necessary yet depleting product. The big cuts in capital spending in the oil sector due to the recent temporarily low prices will come back to bite us in the backside over the next year or two. This will also lead to out sized gains for the correctly selected energy stocks.

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