The mega-trend towards electric vehicles has given some traders ammunition to call for lower oil prices but some oil bulls are using this same argument to predict much higher prices for the commodity.
It sounds counter-intuitive but that's exactly what one high-profile hedge fund manager is saying in his tweet suggesting that the oil price could reach US$300 a barrel within a few years.
That outlandish claim from Pierre Andurand, which was reported in Bloomberg, is backed by his belief that the electrification of vehicles has prompted oil companies to curtail investing in longer-term projects.
This means we could face a supply-shock down the track as depleted oil wells are not replaced with new ones when the long-term price outlook for crude oil is bearish.
Andurand went on to explain that hitting that US$300 number "is not impossible".
Analysts have been getting increasingly bullish about oil as the commodity has defied expectations since bottoming at around US$40 a barrel mid last year, but few would join Andurand in making such a bold call.
What his tweets (which have subsequently been taken down – so perhaps that shows the extent of his conviction on that forecast) have done though is to prompt investors to think about the sustainability of the oil price rally.
Crude oil may have given up some ground last night (probably due to a resurgent US dollar and not oil fundamentals) but the West Texas Intermediate (WTI) benchmark is still over US$67 a barrel and has kept its head over US$60 a barrel for almost all of this year.
But the saying that "nothing cures high prices like high prices" was probably conjured specifically for commodities. High prices attract greater supply while demand tends to drop. Let's not forget that high oil prices act like a tax on our economy.
On the other hand, we have seen the oil price race well above US$100 a barrel this century and that didn't seem to do too much damage to economic activity. The oil party came to an end because of the GFC and not high commodity prices.
What this means is that oil could continue marching towards the US$100 mark if OPEC and friends hold the line in limiting the supply of crude and geopolitical tensions continue to rise with fresh sanctions against Iran coming into effect.
That would be a good outcome for our energy stocks like Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH), Origin Energy Ltd (ASX: ORG) and Beach Energy Ltd (BPT) – just to name a few.
Luckily, we don't need oil to be at US$300 for the sector to keep outperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
There is another sector that is well placed to outperform the market. The experts at the Motley Fool are particularly bullish on the outlook for this niche group of stocks.
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