Note: This is not financial advice. I’m not a financial advisor and I’m wrong 100% of the time. Investments are risky and nothing mentioned here should be considered financial advice. Invest at your own risk.
Last week, OPEC+ agreed to cut 9.7 million barrels per day. Yay! Well, it seems global demand is usually around 100 mbpd before the zombie apocalypse and is down 20-30% depending on what source you are using.
That means with those cuts, everyone is producing 90 mbpd and the world is consuming 80 mbpd. Still 10 mbpd over demand needs.
When this all went down, I pretty much called every step of this. I saw an opportunity to buy Brent Crude at a very, very low price, and felt it would get back to its normal price in no time. I kept reading the headlines basically stating that this could drag on for years, crude could get to $5 per barrel.
Let’s look at some quick numbers behind the scenes.
- A few months ago, I was noticing WTI at $54 per barrel. This is normally a few dollars cheaper than Brent Crude.
- I then noticed it dropped to $45 like overnight.
- A few days later I saw it at $27 and wondered what was up.
I then looked at some other numbers:
- Russia breaks even around $42 per barrel
- Fracking breaks even at $50-$60 per barrel
- Saudis went into negotiations at $45 per barrel wanting higher oil prices. Russia balked and Saudis promised to flood the market
To recap, during the worst financial crisis of my lifetime, I could not see Trump letting American oil producers failing. I figured within a month, we would strong arm a resolution, one way or the other.
What I didn’t know was that there was a supply glut and demand would drop 20-30%. With the supply cuts, OPEC+ essentially froze the price in place. Good start.
I’ve also been reading that US cuts could be 5 mbpd. The first fracking company filed bankruptcy a few days ago. Trump doesn’t want more. If I can conjure up my crystal ball….
- I’d do an iron condor if I were to play this and feel the price of Brent Crude will noodle up and down from 27-32 for the next few weeks. This is not investment advice, but if I was a gambler, I’d see it moving little over the next few weeks.
- Texas will get a stage to announce cuts. Fracking has to make cuts.
- OPEC+ will announce more cuts
I can see these cuts totaling 25 mbpd. That could continue to freeze prices but could also possibly create a 5-10 mbpd surplus.
Likewise, right now, Texas is talking about re-opening. Many states are barely affected, and they may re-open. Cruises are trying to get back to doing business, ASAP. China has re-opened.
April? It’s a wash. They froze it.
May? Brent Crude could start nudging up. Take a look at the chart.
I think in May we will start seeing it test the $34 line more and more as demand picks back up.
June? I see it in late June hitting $38-$42 per barrel. This may be OVERLY optimistic, but remember – Trump is in an election year and he cannot have the oil industry fail completely on him. I would not put it past him to add all kinds of tariffs if there’s not steep increases in prices, and soon. THIS is the x factor many people don’t count on.
Additionally, Putin stopped buying gold. They have been buying like crazy since 2015. The problem is, have you said to yourself lately, “wow, that’s a fine Russian automobile I just bought?”. What the hell does Russia have – oil and gas. They need $42 per barrel to break even. They may have felt it would be worth it to lose a few dollars per barrel for a short time to take oil to $37 per barrel and put frackers out of business. I do NOT think they calculated $22 per barrel.
July? Back to $44-46 per barrel with more and more people traveling again. Again – this could be overly optimistic, but if you look at all mainstream media, they are predicting doom and gloom with oil prices. These are the same people that predicted $5 per barrel and for this oil war to go on for years. Don’t believe it. I’m going long on oil – BNO was down to $7.90 a few weeks ago and I bought as much as my lunch money would let me. BNO is an ETF that trades Brent Crude. Why I bought this as opposed to things like Exxon?
Exxon and other energy stocks depend on sales. I don’t care about sales. I care about predicting that price tag to go up, irrespective of Exxon profits.
Long term, I just watched a video with Cramer from mad money and I really feel this whole thing will take us to new levels of change in this country. He mentioned that Goldman Sachs has 98% of their work force as teleworking right now. If you can find efficient ways of teleworking – you could save a LOT of money on rents.
What does this mean?
- Long term, I see less and less commuting to work with cars. Less oil demand in the long term, not the near term.
- I think the solid state battery is getting close. This will take electric cars to perhaps 500-600 miles on a single charge. THIS is the next generation of cars.
- This will kill off weak car companies that are far behind on battery tech. There will be lots of pain, mergers and acquisitions in the auto industry.
- Silver demand will continue to outpace production. Electric cars can be charged in your home. Millions of these will be produced every year. They estimate between 125-150 million electric cars will be produced in the next 10 years. More and more homes will get solar panels as the prices get lower and lower.
- Less people in the office. Maybe desks are further apart. maybe 50% of your staff teleworks. Maybe 90%. Maybe you only have to be in the office once every 2-4 weeks.
- More telework means if you live in Omaha, you can accept that position in NYC and travel there once a quarter. This drives down prices for labor in big cities. This will deflate home prices there. Home prices in suburban and rural areas further away from big cities with land will start to rise.
- Oil energy demand will stay flat. There are more and more people every year, but if we are more efficient on oil usage, the demand can stay flat. Energy companies are having to invest billions and billions in exploration. Prices will increase for production over the next 10-20 years steeply. Demand will not increase, or lightly. Lots of consolidation in this sector.
- If you are in commercial real estate, there may be a significant draw down in demand for 5-10 years as companies will be competing to see who is the most efficient. NYC firms are now finding out they can get talent from all over the country and telework at much lower costs and won’t have to spend so many millions on rents. This has started commercial real estate issues. I’d be a strong buyer 5-10 years from now, but I see a lot of vacancies about to happen. A LOT. If you wanted to start a business with a store front, wait 6 months and you might get some cheap real estate.
- Less airline travel for businesses. I see a lot more zoom video conferences. It’s already moved in that direction, but this is the final kick. More efficiencies from business then also cut travel budgets. I’m personally staying away from any airline stocks. There will be bankruptcies, and soon.
So – my hope is that my interest in BNO doubles inside of 8 months. My avg cost on it now is just under $9 per share, and I could see it get back to $16 relatively soon. At its height, I saw BNO once hit $60 per share. So buying a lot of these shares low and holding might produce a 6 or 7 bagger if held for 3-10 years for when the next crunch hits.