Oil Prices Hit New High for the Year

By Chris Lowe, Editor-at-Large on June 12, 2015

Oil prices hit a new high for the year this week, as you can see from the chart below.

061215 DRE WTI

On Wednesday, the price of a barrel of U.S. crude hit $61.43 – its highest level in 2015.

This is being driven in part by rising demand.

The International Energy Agency says global demand for crude oil will increase by 1.4 million barrels a day this year. That would bring daily average demand to 94 million barrels.

Last year’s average was 92.6 million barrels a day.

But what’s really interesting is that oil prices are climbing despite news that OPEC production just hit its highest level in three years.

I recently talked to resource investing expert and chairman of Sprott U.S. Holdings Rick Rule about the long-term outlook for oil.

The full interview was included in the May issue of Bonner & Partners Investor Network. But today I want to share with you one of the key takeaways…

Rick told me that if oil prices fell back into the $40 to $50 range… and hold there for two or three years… capital investments in oil wells would fall. This would significantly impair their production capabilities.

In that case, any increase in demand will likely take the oil price to the $125 or $150 level.

But if oil prices stay in the $60 to $65 range for the next two or three years any demand response would likely only take the oil price up to $70 to $80.

That’s a consequence of our ability to increase production from well-maintained oil fields.

As Rick put it:

It reminds me of the old Purolator oil filter commercial. A mechanic is on the TV screen saying, “You can pay me now,” holding up a $10 oil filter, “or you can pay me later,” holding up a $1,500 blown engine.

Rick also explained why today’s beaten-down resource markets offer contrarian-minded investors a rare opportunity to capture “explosive” gains when the next bull market in commodities takes off.

More important, he passed on his top speculative recommendation for how to profit in the next commodities bull market.

To read my full Q&A with Rick, sign up for a risk-free trial of Investor Network at 60% off the regular price.

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