Oil rumoured to be top investment for 2016

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Oil stocks are rumoured to be one of the top investments for 2016, according to experts in the field.

For those investors who are considering options that allow them to buy low, oil stocks are more tempting than ever, with oil prices sitting at their lowest levels since the 1990s.

Tom Wheelwright, CEO of ProVision Wealth and tax reduction expert, told the Huffington Post: "Just like real estate was a good buy for the right investor in 2009-2010, so is oil and gas investing for the right investor now. The right investor is one who has a solid wealth strategy and knowledge of oil and gas investing.”

As seasoned investors know, commodities, including oil and gas, are driven by factors other than those which drive growth in corporations. Rather than corporate profit margins, the price points of commodities are more likely to be boosted or hindered by supply and demand. Prices will naturally drop if the supply far outweighs the demand and, on the flipside, when a higher number of buyers are fighting over a smaller quantity of the commodity, it becomes far more valuable and prices can skyrocket.

Oil prices have fallen over the last few years, as the production of domestic oil in the US has almost doubled. This means that oil producers are having to appeal to customers who have far more power to haggle over prices than they did when supply was low. Alongside this declining demand, consumers are making the most of record low oil prices and this could well be the year to invest in the industry. As the oil sector is famous for its boom and bust cycles, the likely rebound in oil prices, when it does happen, could propel those small investments made in 2016 into the bigtime.

Shailesh Kumar, from value investment advice service Value Stock Guide, believes that oil industry stocks were a solid investment for this year. He referenced the International Energy Agency Oil Market Report, which confirmed that oil demand is tipped to peak at 96.5 barrels per day during the second half of this year. With the current supply sitting at around 97 million barrels per day, equilibrium will soon become the buzzword in the supply and demand cycle, which should, according to Mr Kumar, put upward pressure on oil prices.

Mr Kumar also added that Russian moves to freeze oil production at its current level in 2016, alongside OPEC members Saudi Arabia, Venezuela and Qatar, could also lead to a rise in oil prices.

“Even a small reduction in production can deplete the oil inventory very rapidly so the prices can ramp up very quickly if an agreement to cut production is reached," he said. This could mean a lower supply due to more inactive oil rigs and, as oil inventories decrease, so in turn oil stocks rise.

Another element that could see oil stocks becoming increasingly valuable is the recent lifting of a US ban on crude oil exports, The Wall Street Journal reported. The lifting of this 40-year old ban could lead to demand for oil rising in the US, adding further propulsion to the rise in global oil stock prices. As US oil producers continue to expand their customer base, it also looks increasingly likely that higher profits could lead to further boosts to oil stock performance.

Another factor that could mean oil stocks are one of the top investments for 2016 is the rising demand for gasoline, according to Jay Hatfield, co-founder and president of InfraCap, which is linked to energy partnership AMZA. Demand has rise by more than 10 per cent over the last few months compared to the same time period last year, said Mr Hatfield.

This rise in gasoline demand — which Mr Hatfield predicts to increase to more than 700,000 barrels per day — looks set to lead to increased profits and far higher oil stock prices.

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