The Middle East is always in turmoil, but the current situation is potentially explosive. OPEC’s stance on maintaining production restrictions ensures a tight oil supply, setting the stage for price hikes.
Globally, GDP is expected to grow in nearly all countries, with forecasts of 3.1% growth this year and 3.2% next year. This economic expansion signals increased demand for oil. Basic economics teaches us that rising demand coupled with restricted supply leads to higher prices.
Technically, oil has been battling to break through the $80 per barrel resistance level since November. After several failed attempts, it finally breached this barrier in late June, marking a bullish trend. Moreover, the 3-year chart shows oil making higher lows since spring last year, reinforcing this positive outlook.
For income investors, this is a golden opportunity. The oil sector is rich with strong dividend payers like Chevron and Suncor Energy, both yielding over 4%, and pipeline companies like CVR Energy and Hess Midstream, offering yields above 7%. This means while you wait for oil prices to climb, you can enjoy substantial dividend income.
With both supply-demand dynamics and technical indicators aligning, higher oil prices are on the horizon, making now a good time to invest.
Sven Franssen