Is oil a good investment now?

Is oil a good investment now?

McKittrick Oil Field in 1910 in McKittrick California United State
Oil prices are likely to reach a high point of $140 or even higher this year. 

The prices of oil experienced a low period around 2020 due to the Covid epidemic. Restrictions on tourism and industrial production reduced the oil demand, lowering the oil prices. The oil prices once dropped to around $40. However, several factors have driven up the oil prices since then. Firstly, as the epidemic slowly subsided and the U.S. announced the end of the Covid outbreak, the public’s demand for travel significantly increased. People’s enthusiasm for travel increases the demand for oil and its price increases in response to it. The oil price has experienced a steady rise from 2021 to now and is expected to continue increasing until the enthusiasm calms down.  

Cross section through southern Siberian craton. Approximate location of cross section A-B in File:Siberian_oil_fields.jpg. Cm1, Cm2, and Cm3, Lower, Middle, and Upper Cambrian, respectively; (R) Riphean; (V) Vendian; (Pz3) upper Paleozoic; (Tr) Lower Triassic. Approximate length of cross section 1,000 km.

Secondly, oil prices have experienced a dramatic rise since the Russian attack on Ukraine. The price reached and preceded $120/barrel, hitting the highs seen during the financial crash of 2008. 

The main reason for the rise in oil prices is two-fold.

Firstly, that the US banned Russian oil. But, secondly, followed by Europe’s halting their imports from Russia by the end of the year. Moreover, Russia is the world’s third-largest producer of oil, as well as the world’s largest oil exporter. In that case, this sudden change has caused an extreme oil shortage. As the supply of oil decreases a large amount, and the demand for oil remains high, the global oil price will increase consistently. However, this phenomenon will not be alleviated soon, as the conflict between Russia and Ukraine will not end shortly. Hence, the oil price may remain high or even go higher to $140 due to the low supply and high oil demand. 

Thirdly, China is likely to increase its demand for oil in the future. In recent years, with the promotion of green energy, the CO2 emissions in China have continued to fall. Moreover, China has slowed the pace of infrastructure development in recent years. During the epidemic of Covid, the Chinese government prioritized managing the epidemic and stabilizing the social order. This action pushed down the oil demand. However, after the epidemic becomes stabilized, China may turn its attention to infrastructure development.

Thus, China’s demand for oil will increase, leading to higher oil prices in the future. 
Isopach map showing the extent of the Bedford Shale, Berea Sandstone, and associated shales and sandstones in Ohio and northern Kentucky in the United States. Is oil a good investment now?

From the chart, the oil price trend is increasing steadily except for the financial crisis in 2008, which shows a large rise and drop. In 2022, oil prices will continue to soar to 120, and the shortage of oil will not be solved in the short term, so I maintained that the oil price would go forward to $140. 

Lastly, the US capacity for operating a refinery has dropped over a million barrels a day since 2020.

Moreover, the last new refinery made in the US was 50 years ago!

Furthermore, Chevron CEO Mike Wirth, there may never be a new one built in the US:

“You’re looking at committing capital 10 years out, that will need decades to offer a return for shareholders, in a policy environment where governments around the world are saying: we don’t want these products. We’re receiving mixed signals in these policy discussions.”

Data from the EIA:

Written by Kaixin Cheng

Edited by Jimei Shen

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Is oil a good investment now?