Will Oil Prices Hit $80 This Year?

Enbridge Inc (TSX:ENB)(NYSE:ENB) had a tough 2017, although a high price of oil could mean big things for the pipeline company in 2018.

| More on:

This could be a big year for oil prices: we could see oil climb to as high as $80 or tumble back down to $40.

Oil prices have been rebounding since the second half of 2017. At over $60 a barrel, West Texas Intermediate (WTI) has not been this high since 2015. Brent Oil, which is normally higher than WTI, is nearing a three-year high at $67 per barrel.

The big question investors will inevitably ask is this:

Will oil prices continue to rise?

Companies like Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) and Enbridge Inc (TSX:ENB)(NYSE:ENB) will benefit significantly from higher oil prices. Higher prices will help accelerate the industry’s recovery and could translate into more drilling and more oil transported via pipelines.

As long as excess supply levels continue to decline, it will open the door for oil prices to continue their ascent. Tensions in the Middle East and North Korea also present some instability globally; any conflict could have a dramatic impact on oil prices, especially if it involves oil-producing countries.

In 2017, we saw oil prices start to slide at the beginning of the year only to recover in the latter half of 2017. It’s much too early to predict a similar rise this year, but the danger for investors is that ever since the collapse in oil prices, the commodity has been very volatile.

Optimists will tell you that oil prices have been on the rise for two years and that the trend will continue. However, pessimists will point out that oil prices had nowhere to go but up after crashing to under $40 by the end of 2015.

Supply cuts may well be the new normal

Currently, oil prices are being propped up by an agreement to reduce supply, which could be extended until the end of this year depending on how the commodity performs. If oil prices do well and continue to rise this year, we could see that deal abandoned early.

The danger is that once that happens, oil prices will likely decline. How much of a decline will depend on the overall rate of production for each country, as we could see countries trying to make up for lost production as a result of the cuts, which have been in place for over a year.

Without the supply cuts, the price of oil would certainly be lower. The real danger is that oil prices are artificially high, and will be unsustainable at these levels if the industry doesn’t keep its commitment to reducing its output. It’s hard to envision deep supply cuts becoming the norm, however, as many countries rely heavily on oil, and last year we did witness some non-compliance around the agreed cuts. Petroleum Exporting Countries (OPEC) agreed to cut its output by some 1.2 million barrels a day to end a global glut.

Bottom line

The price of oil could very well continue to rise in 2018, but investors need to be aware that if that does happen and supply cuts are eliminated, we could see a big correction.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Energy Stocks

construction workers talk on the job site
Energy Stocks

Best Stock to Buy Right Now: Baytex vs Suncor?

Suncor and Baytex stocks both look like solid companies offering growth and dividends. But which is the better buy?

Read more »

bulb idea thinking
Energy Stocks

3 Incredibly Cheap Energy Stocks to Buy Now

Energy stocks are trending upwards on the back of several key factors. And these three continue to be top cheap…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Should You Buy Freehold Royalties Stock for its 8% Yield?

Freehold Royalties is a TSX dividend stock that offers shareholders a forward yield of 8%. But is the energy stock…

Read more »

Muscles Drawn On Black board
Energy Stocks

Is Suncor Energy Stock a Good Buy?

Suncor is on a roll in 2024. Are more gains on the way?

Read more »

profit rises over time
Top TSX Stocks

3 Reasons to Buy Enbridge Like There’s No Tomorrow

Have you considered buying Enbridge (TSX:ENB)? Here are 3 reasons to buy Enbridge today for lasting growth and income.

Read more »

oil pump jack under night sky
Energy Stocks

Is CNQ Stock a Buy for its 4.5% Dividend Yield?

CNQ stock is one of the best options out there for dividend growth. But what about value? Let's take a…

Read more »

Pumpjack in Alberta Canada
Energy Stocks

Is Imperial Oil Stock a Buy, Sell, or Hold for 2025?

Imperial Oil stock is in a precarious position, so what should investors consider as we head nearer to 2025?

Read more »

construction workers talk on the job site
Energy Stocks

Is Suncor Stock a Buy, Sell, or Hold for 2025?

Suncor Energy stock is trading at its decade-high on uncertainty in the oil market. Should you buy, sell, or hold…

Read more »