Where Are Oil Prices Headed?

American Investment Planners LLC

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The question on everybody’s mind the last few weeks is where are oil prices headed?  The only sense of agreement in investor’s minds is that oil prices will certainly continue to be low… unless prices surge! Definitely one or the other. Over the past two weeks, crude oil has seen one of its biggest gains in 17 years. However, surprisingly enough, it is still approximately 50 percent cheaper than it was this past June.

With regards to future pricing, predictions vary greatly; the President of Goldman Sachs predicts $30 a barrel, while the head of OPEC predicts as much as $200 a barrel. According to an article on Bloomberg.com, this year, the average price of crude oil is expected to fall anywhere between $35 to $80 a barrel; these prices were determined in a Bloomberg Intelligence survey taken by 86 investment specialists. Since supply surpluses won’t disappear overnight, and if there is no investment in new supply, the price of crude oil will certainly rise, creating the need for shale oil to make up for production declines around the world.

And if there is no end to the various predictions of oil prices, there seems to be even more speculation on the impact of lower oil prices; both advantages and disadvantages.  Low prices at the gas pump leave more income available in our pocket that could be spent elsewhere in the economy.  However, if there will be longer term layoffs in the industry, this could impact real estate values in the region. Protecting your 401(k) portfolio allocation is crucial since many of us leave substantial percentages in company stock and may only review performance when paper statements are mailed.  Proactive decision making during volatile market conditions will entail knowing the investment options available to you in your company plan and how best to navigate the choices based on your risk tolerance.  Investors often use correlations as a key to figuring out how to reduce portfolio risk, however, you should not rethink your entire portfolio just because the relationship between the stock market and oil prices have changed of late.  In the long-term, falling oil prices should be good for stocks in general.

Asking your trusted certified financial planner for guidance will go a long way towards securing a comfortable retirement plan, since they will know how your investments are allocated outside the company plan and assist in creating the proper overall allocation.  Determining your exposure to various sectors of the stock market will help increase your awareness of your risk exposure, and that is the first step towards reducing your overall risk and portfolio volatility.  

Please feel free to email your questions on portfolio allocation to barbara@americaninvestmentplanners.com

The statistics and prices listed in this blog are courtesy of BloombergBusiness.