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It might not happen in the near term. But the major signs suggest oil prices are headed high, writes BlackRock’s Russ Koesterich.He list three big keys to how the crude can rebound after its 25 per cent loss from its 2012 high.
- Unconventional sources are producing more oil, such as tar sands in Canada, among other places, where costs are higher.
- Russia and Saudi Arabia, along with other large oil producing countries, require a significantly higher price for crude to help balance budgets.
- OPEC capacity is less than 4 million barrels per day, which equates to roughly 11 per cent of overall production. This marks the lowest level since 2008, and subsequent supply disruptions should push crude up swiftly.
Despite BlackRock’s expectency of crude rising, they do not reocmmend holding a direct position in crude oil. Instead, BlackRock would rather see investors put money into energy equities.
How should investors consider playing this? For most investors, it’s both unnecessary and unpractical to hold a direct position in crude oil. One more practical idea is to capture the potential benefits of higher oil prices through an overweight to energy stocks.