Continuing with the oil industry, in late January John Kemp of Reuters wrote an article about oil prices. What is your outlook for the world’s economy? It is expected oil prices will be influenced by the health of the global economy. Demand first, second is the US shale production growth, US sanctions on one country or the other, the politics of Venezuela will have an effect but it is secondary to the global demand.
The global economy is not as vibrant as it was last year or there is slowdown, to what we will find out in the coming months. Much will depend on the US and China – their talks over tariffs.
US Shale output was up 2 million barrels in 2018, the demand for the oil is less and there is overproduction of gasoline. Will the companies produce less, depends where the price of oil goes.
OPEC has plans to cut production by 1.2 million barrels to prevent too much supply. They might have to cut more depends on the supply.
The US has pledged to tighten sanctions on Iran’s oil exports. The first phase left generous gaps to customers in Asia. Will the waivers be as generous this year?
Linking to dividend paying stocks, when your company does not have a monopoly or have monopoly like conditions, it is important to look at the macro supply and demand. In the oil industry people will still drive their vehicles and heat their homes, so there is a demand for the product but how much? one person saving on their energy costs is a good thing, if everyone does it the supply is affected. If the company can make money on lower raw materials so much the better. Then you can examine cash flow to ensure how safe are your dividends.
There are more questions than answers, till the next time – to raising questions.