Analyst: Oil Prices Must Fall in Order to Stay Competitive

According to one analyst, oil prices must decline to $10 and $20 per barrel in order remain competitive in the ever-changing mobility sector. Oil prices have been racked by the market volatility due to fears of easing global demand due to the U.S.-China trade war.

“We have to be very clear here,” said Mark Lewis, who is global head of sustainability research at BNP Paribas Asset Management, added. “What we’re saying is if you’re comparing investing money in renewable energy in tandem with electric vehicles, you can get six to seven times the energy yield at the wheels – useful energy, mobility – for the same capital outlay as you can spending on oil at the current market price of $60 a barrel, and then refining it into gasoline and using it in an internal combustion engine, which loses 80% of the energy as heat.”

Oil prices edged higher this week after the latest data from the U.S. Energy Information Administration revealed a steep fall in U.S. crude stockpiles. Brent crude futures were1.7% higher to reach a price of $60.52 a barrel while WTI crude futures were 1.5% higher to $55.75 a barrel.

Other opportunities may exist in energy storage.

“What you have here is an energy source that’s got a zero short run marginal cost and the capital costs are plummeting, so now is the time to invest in energy storage,” he added.

“Ten years ago – even five years ago – putting capital into that didn’t really make sense because renewables themselves were still expensive and still needed subsidies. They don’t need subsidies anymore.”

Leveraged bull traders certainly cheered the move when it looked like worries of oversupply and weaker global demand would put downward pressure on oil prices. The markets have been roiled by the U.S.-China trade war news, which looks like it could extend into extra innings. Furthermore, the bond markets were flashing recession signals from an inverted yield curve.

Traders looking to make a play on oil can look to leveraged exchange-traded funds (ETFs).

Oil bears can look to the Direxion Daily S&P Oil & Gas Exploration & Production Bear 3X ETF (DRIP) for inverse opportunities. For bulls looking to buy on the weakness can look to the United States 3x Oil (NYSEArca: USOU), ProShares UltraPro 3x Crude Oil ETF (NYSEArca: OILU) and the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares (NYSEArca: GUSH).

Two additional funds for traders to consider are the Direxion Daily Energy Bull 3X Shares (NYSEArca: ERX) for bullish plays and the Direxion Daily Energy Bear 3X Shares (ERY) for bearish opportunities to take advantage of.

For more market trends, visit ETF Trends.