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2019 is nearly here, and that means it is time to roll out my ten predictions for the new year. As I did last year, I will start with number 10 and work our way up to number 1 over the last month of 2018. Enjoy!
Prediction #6 – The Price of Oil Will Surge 50% On Weaker Dollar in 2019
Oil prices hit a peak price of about $76 in early October, but since that time the price has plunged nearly 42% to around $44 per barrel. Don’t count oil out in 2019 because it may rebound to about $65, an increase of 48%. Should that happen one can blame a weak dollar for the rise. We noted the dollar was likely to weaken in 2019 due to a Federal Reserve putting a pause on interest rate hikes.
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Oil and the dollar have a highly negatively correlated relationship. Since 1986, the correlation between the two is negative 0.75 with an R^2 of 0.57. Should the dollar weaken, it is likely to result in the price of oil surging in 2019.
Technical analysis also suggests that oil prices are oversold and likely to rebound next year. Oil has hit a critical level of technical support at $42, and should that level continue to hold it may result in a reversion in the price of oil to its long-term uptrend to around $65. Oil cut through all other support levels on the way lower in October and November, and that would suggest those level are not likely to act as resistance on the way back up.
Supply and Demand
According to IEA world oil demand hit 99.61 million barrels/day in the third quarter of 2018. That was its highest reading since 2014. The problem was that oil supply also at its highest level at 100.9 million barrels/day.
IEA is also projecting oil demand in 2018 to rise by 1.3 million b/d, and for it to increase by another 1.4 million b/d in 2019. Meanwhile, non-OPEC supply is forecast to fall 1.5 million b/d down from 2.4 million b/d in 2018.
All in all its setup what could be a bounce-back year for oil and prediction #6.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.
predictions, oil, 2019, stocks