Potential looming energy crisis could derail economy
(Kitco News) - Oil prices have surged this year, up more than 60 percent in2021. For the first time since 2014, oilis trading at more than $80 a barrel. It's possible that oil prices could top$100 a barrel, John Burnett, Founder of 1 Empire Group said.
Speaking in a panel along with Michele Schneider, Managing Director of theMarketgauge Group hosted by Michelle Makori, Lead Anchor and Editor-in-Chief ofKitco News, both Burnett and Schneider agreed that energy sector is poised forfurther growth.
Burnett discussed the reason he sees oil prices skyrocketing. "When you talkabout inflation, driven partly by supply chain issues, employers givingincentives, driving up wages that are not sustainable," he emphasized. "Youlook at the situations where President Biden has reduced American independencein fossil fuel, oil production, and exploration. This has a huge impact onenergy prices. Energy is a key input to various economies."
"Abolishing American energy independence means the Americaneconomy is now dependent on foreign oil. We are now dependent on the price offoreign oil and related demand," he added.
"I don't see the price of oil declining. If we continue togo down this route where people aren't going back to work, and there could bepotential global conflict, which would only exacerbate the situation. The I cansee oil breaking that $100 barrier." Burnett emphasized. "But absent anymilitary conflict, if things don't get back to normal quickly, the price of oilwill still increase another $10 to the $90 range. That is a good return on thecapital gains side for oil companies. it's a really attractive dividend yield."
Schneider, who is also the author of the best-selling book Plantyour Money Tree, a Guide to Growing your Wealth, spoke about the parallel ofthe 70's with oil to today, which she recently sees. "The one thing that reallystarted the trigger of inflation, even before we saw the hyperinflation of thelate 70's into the early 80's, was the oil embargo and disruption of the oilsupply," she explained. "There are different reasons today, but the outcome islooking very similar."
Both Schneider and Burnett agree that a buy and holdinvestment strategy in this economic climate is not a wise choice. "Consumerswill hold off on their buying and focus on essentials. I like energy producerslike British Petroleum, Chevron and Exxon, and a retailer like Walmart"
Burnett said. "In good or bad times, people need to moveabout in terms of going to work or school, and buying food."
Schneider said her top energy stock pick is BritishPetroleum. Schneider advises investors to look at commodity ETF's if theyprefer not to trade a commodity. "You can trade energy through XLE, you can lookat gold, silver, food and gas through ETF's," she explained.
"XLE EFT cleared the 200 week moving average this week, thefirst time it's been above that level since 2018. When you look at a phasechange or a trend change for the next couple of years, it is possible we aregoing to see more upward movement in the price of oil and energy. Energyproducer stock prices will rise while paying dividends," Schneider said."That's a win-win scenario."
September's employment report out on Friday was much weakerthan expected, missing its estimate of 500,000 new jobs. The U.S. only added194,000 new jobs, and the labor force shrank by 183,000, according to the governmentreport.
"I focused on the wage increase rather than the number. Theenticement to try to get people back to work with higher salaries and greaterbenefits including health benefits, is not really doing the trick if people arenot going back to work," Schneider said.
"We should have anticipated a huge shortfall. Why? Because there's a huge hesitancy by theworking class, whether it be teachers, first responders, or food servicesuppliers to go back to work," Burnett said. "It's not a good sign."
For more on Schneider and Burnett's views on the economy,energy prices, and investing, please watch the full video above. FollowMichelle Makori on Twitter: @Michelle Makori
By Kitco NewsFor Kitco News
Follow @kitconewsnow
newsfeedback@kitco.comwww.kitco.com