Potential looming energy crisis could derail economy
(Kitco News) - Oil prices have surged this year, up more than 60 percent in 2021. For the first time since 2014, oil is 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 the Marketgauge Group hosted by Michelle Makori, Lead Anchor and Editor-in-Chief of Kitco News, both Burnett and Schneider agreed that energy sector is poised for further growth.
Burnett discussed the reason he sees oil prices skyrocketing. "When you talk about inflation, driven partly by supply chain issues, employers giving incentives, driving up wages that are not sustainable," he emphasized. "You look at the situations where President Biden has reduced American independence in fossil fuel, oil production, and exploration. This has a huge impact on energy prices. Energy is a key input to various economies."
"Abolishing American energy independence means the American economy is now dependent on foreign oil. We are now dependent on the price of foreign oil and related demand," he added.
"I don't see the price of oil declining. If we continue to go down this route where people aren't going back to work, and there could be potential global conflict, which would only exacerbate the situation. The I can see oil breaking that $100 barrier." Burnett emphasized. "But absent any military conflict, if things don't get back to normal quickly, the price of oil will still increase another $10 to the $90 range. That is a good return on the capital gains side for oil companies. it's a really attractive dividend yield."
Schneider, who is also the author of the best-selling book Plant your Money Tree, a Guide to Growing your Wealth, spoke about the parallel of the 70's with oil to today, which she recently sees. "The one thing that really started the trigger of inflation, even before we saw the hyperinflation of the late 70's into the early 80's, was the oil embargo and disruption of the oil supply," she explained. "There are different reasons today, but the outcome is looking very similar."
Both Schneider and Burnett agree that a buy and hold investment strategy in this economic climate is not a wise choice. "Consumers will hold off on their buying and focus on essentials. I like energy producers like British Petroleum, Chevron and Exxon, and a retailer like Walmart"
Burnett said. "In good or bad times, people need to move about in terms of going to work or school, and buying food."
Schneider said her top energy stock pick is British Petroleum. Schneider advises investors to look at commodity ETF's if they prefer not to trade a commodity. "You can trade energy through XLE, you can look at gold, silver, food and gas through ETF's," she explained.
"XLE EFT cleared the 200 week moving average this week, the first time it's been above that level since 2018. When you look at a phase change or a trend change for the next couple of years, it is possible we are going to see more upward movement in the price of oil and energy. Energy producer stock prices will rise while paying dividends," Schneider said. "That's a win-win scenario."
September's employment report out on Friday was much weaker than expected, missing its estimate of 500,000 new jobs. The U.S. only added 194,000 new jobs, and the labor force shrank by 183,000, according to the government report.
"I focused on the wage increase rather than the number. The enticement to try to get people back to work with higher salaries and greater benefits including health benefits, is not really doing the trick if people are not going back to work," Schneider said.
"We should have anticipated a huge shortfall. Why? Because there's a huge hesitancy by the working class, whether it be teachers, first responders, or food service suppliers 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. Follow Michelle Makori on Twitter: @Michelle Makori