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Oil Prices Could Soar by More Than 100% in the Next Few Years, Says Smead Capital Management CIO
Oil Prices Expected to Rise to $150-$200 a Barrel
Chief Investment Officer at Smead Capital Management, Bill Smead predicts a sharp increase in crude oil prices by between 100% and $170% over the next three to five years. Smead expects crude prices to rise to between $150 to $200 a barrel, up from Tuesday's Brent crude price of around $74 per barrel. Smead attributes this development to inflation being a stickier problem than anticipated. According to him, too many people with too much money are chasing too few goods as seen in the unskilled labor market in the US as their prices go up by about 10% every six months.
Oil Demand Expected to Increase in the Future
OPEC's oil-producing group recently predicted that there would be a surge in global oil demand to 110 million barrels a day in the next two decades. This forecast suggests an increase in the world's energy demand by 23%. There have also been bullish takes on oil prices recently, with Eric Nuttall, a senior portfolio manager at Ninepoint Partners, reiterating that the oil prices had hit the lows of the year. Research company, Rystad Energy, also reiterated that market fundamentals would soon drive prices up, and upward price pressure would materialize.
Opportunities in Energy Stocks
Energy stocks have underperformed the broader market, losing around 8% year-to-date. However, this could be an opportunity to invest in energy stocks. Smead and Nuttall are confident that energy stocks, and specifically, Occidental Petroleum, Devon Energy, Cenovus Energy, and MEG Energy, will perform well. Smead likes Occidental Petroleum because of its plan to capture and store carbon dioxide. For Nuttall, Cenovus Energy and MEG Energy have a high cash flow yield, and he expects both companies to pivot towards the 100% free cash flow returned to shareholders after fulfilling their debt targets by the end of the year.
Although much will depend on the economic performance of China and the ability of the US and Europe to avoid economic recessions during rate hikes, the oil market's fundamentals will soon drive prices up. As such, investing in energy stocks may prove to be profitable in the near future.
In light of predicted rising oil prices, the opportunities in energy stocks may present an opportunity for new businesses. Investing in energy stocks, such as Occidental Petroleum, Devon Energy, Cenovus Energy, and MEG Energy, could be a wise investment decision for new businesses looking to grow and benefit from oil price hikes. These energy companies have strong fundamentals and strategies for growth and sustainability. For example, Occidental Petroleum has an innovative plan to capture and store carbon dioxide to address climate change, which may attract investors' interest. Cenovus Energy and MEG Energy have cash flow yields, and both companies plan to shift their focus towards returning 100% free cash flow to shareholders after meeting their debt targets in the near future.
However, investing in energy stocks is not without risks, and a new business should carefully consider all possibilities and any effects on the company's portfolio. It is also worth considering the economic performance of China and the ability of the US and Europe to avoid economic recessions during rate hikes. Nevertheless, the forecasted surge in energy demand and the bullish outlook on oil prices suggests that now could be a good time for new businesses to consider investing in energy stocks.
