The Organization of the Petroleum Exporting Countries (OPEC) has agreed to extend production cuts until next March, endorsing a policy designed to support oil prices amid increasing production from the United States, which has become the world’s top producer ahead of Russia and Saudi Arabia. The deal is awaiting approval from non-OPEC allies; however, Iraq’s oil minister stated he did not anticipate any complications.
But Bubba Trading founder Todd Horwitz is a bit skeptical. OPEC "never adhere[s] to anything," he told Yahoo Finance. "That's the problem with the entire OPEC world is that they're all backstabbing each other as it goes on.”
The U.S. has been producing 12.1 million barrels per day of oil, according to recent U.S. data. Saudi Arabia, which has 2.3 million barrels of spare capacity, has been producing 9.7 million barrels a day. As the U.S. continues to produce more oil, Horwitz believes OPEC can “no longer hold the United States hostage, which is what they used to do when oil was cheap. They [OPEC] are a worthless organization."
Oil prices will come down
When assessing the long term outlook for oil prices and the opportunity to invest in the sector, Horwitz told Yahoo Finance that he expects oils prices to come down because the economy is slowing, supply is increasing and demand is falling. “We do have, in this country right now, well over 200 years supply of oil. Now that we’ve become master frackers, we have an overabundance of supply,” he said.
“We’ve had a number of firsts up,” he said. “We just came off a 50% rise from $50... The mid-40’s is a reasonable place for oil when it’s all said and done.”
When analyzing the annualized return over the last 20 years, oil has outperformed the S&P 500. Looking forward to the next two decades, Horwitz believes this return is not sustainable.
“Oil has been a great performer but I don’t expect it any longer,” he said. “There will be a replacement. I assume the S&P and markets will outperform oil going forward.”
Taylor Locke is a producer for Yahoo Finance. You can follow her on Twitter @itstaylorlocke.