This weekend the Saudis surprised the oil markets … again.
Saudi Arabia is cutting oil production by 1 million barrels per day which comes out to 10% of the kingdom’s output.
This is the third production cut over the past eight months.
The oil market responded with a yawn.
The price of crude oil hardly budged.
I can’t speak to why the market is reacting the way it is.
Oil prices should be heading higher, not staying in place or falling.
My research is telling me that Mr. Market is dead wrong on oil.
And I’m not the only one to see what the oil market is missing.
The Oracle of Omaha, Warren Buffett, continues to back the truck up on oil.
Just last week he added another 4 million shares of Occidental Petroleum Corporation (NYSE: OXY) to his holdings.
Berkshire now owns 25% of Occidental Petroleum and it shouldn’t come as a surprise.
Buffett telegraphed it (that’s what we used to say 40 years ago…) to the market close to one year ago!
In August 2022, Berkshire received regulatory approval to purchase up to 50% of Occidental.
And it looks to me like he’s making good on that.
(I also recommended Occidental Petroleum to my Alpha Investor readers back in April 2022. For more about this company and others in our portfolio, check out the details here.)
Buffett has been a buyer of Occidental below $60 per share since he started buying in March 2022.
Supply vs. Demand in the Oil Market
I believe Buffett is looking at the same thing as me. The same as other rational people.
Simple supply and demand…
Supply Factor 1: OPEC
This weekend’s oil production cut is just the latest in a series of cuts from OPEC — now renewed through 2024.
These cuts fall far short of the OPEC embargo that led to the 1970s oil crisis. But they show how oil producers are committed to making the most out of their vast reserves.
For Saudi Arabia’s part, the Kingdom is committed to building new Giga Projects, funding the LIV golf tour and Red Sea resorts as part of its expanding empire…
And they’ll need a fortune in oil money to make it all happen.
When oil prices eventually rise, these kinds of production cuts will give oil producers even greater control over the market.
Supply Factor 2: Green Energy Agenda
Soon after taking office in 2021, President Biden issued a pause on all new oil and gas leases.
He also canceled the Keystone pipeline and set ambitious goals for transitioning to green energy.
President Biden started backpedaling and issuing new leases just over a year later — but the damage was already done.
After briefly becoming energy independent in 2018, President Biden’s green energy agenda has put America behind the curve.
Supply Factor 3: Supply Chain Problems
Even if an oil company committed to drilling new wells immediately, it could take months before the facility was up and running.
And drillers are facing serious shortages of manpower and oil field equipment.
Robert Waggoner of Dan D Drilling in Oklahoma told NPR that he has 20 different semitrucks that he uses to carry the equipment for drilling new wells.
But right now, he’s only able to staff 2 of his 20 trucks.
That means any new oil supply that comes online will likely lag behind demand for years to come.
But none of this means you’re going to stop driving your car.
None of this means the world is suddenly going to demand less oil.
In fact, it’s quite the opposite…
Demand Factor 1: There’s No Alternative
Despite the government’s green energy mandates, there’s simply no way America will be carbon-free by 2050.
Santa Claus, the Tooth Fairy and Net Zero 2050…
All myths. I recently talked to a White House energy insider about this on my podcast. Check it out here.
Even the Energy Information Agency admits that fossil fuels will likely remain our primary source of energy for at least until that time.
That means demand for oil will continue to steadily increase — and it will likely remain the primary fuel for growth and industrialization for decades to come.
Demand Factor 2: Transportation Dependence
While electric vehicles have recently improved by leaps and bounds, 97% of the cars on the road are still gas-powered.
We’re not transitioning to EVs anytime soon. Source.
Heavy-duty vehicles, ships and airplanes all still rely on oil for their fuel.
And these types of transportation are in higher demand than ever before. Jet fuel/kerosene accounted for more than half of the oil market’s gains in 2023.
And higher demand for oil-intensive transportation means higher demand for oil.
Demand Factor 3: Emerging Markets
China has the world’s second-largest economy … and it’s just beginning to come back online after years of strict COVID-19 lockdowns.
As a result, China and other emerging market countries accounted for 90% of all new demand for oil last year.
And as these countries continue to grow and prosper, their demand for vehicles and more energy-intensive products will grow as well.
Not Complicated
The world consumes 99 million barrels of oil per day, and is projected to grow to 108 million barrels by 2030.
While demand is rising, supply is staying the same and falling due to OPEC+ cuts and green energy initiatives.
When too much demand is chasing too little supply, you don’t need to have an MBA from Wharton to know that prices will rise.
Nothing more complicated than that.
I can’t say if they will rise tomorrow, next week or next month … but over the next five years, oil will be materially higher than it is right now.
You can bank on that.
Top Oil Company
That’s why I’m recommending one company that will benefit the most.
When I analyzed the company, I saw that it’s one of the best run in the industry.
Insiders own close to 50% of the shares, last year they generated $500 million in free cash flow and they are debt free.
And here’s the cherry on the cake…
The stock is completely off-limits for Wall Street’s biggest firms and investors like Warren Buffett.
I’d betcha Buffett would love to buy it, but he can’t … it’s too small for investors like him.
But it’s the perfect opportunity for Main Street investors like you.
I guarantee you’re going to like what I have to say in this interview.
You can thank me later.
Regards,
Charles Mizrahi
Founder, Alpha Investor
(From Billboard.)
Los Angeles Lakers star Kobe Bryant was a terrifying talent.
I recently fell down the rabbit hole of watching old basketball clips and interviews on YouTube. Until I realized, with horror, that four hours had gone by, and I had wasted half of what would have been a productive workday.
(It was worth it, by the way.)
To start, Bryant’s willpower to overcome pain was the stuff of legend. The man tore his Achilles tendon driving to the basket — one of the most painful injuries you can have in any sport. Yet he still managed to sink free throws and limp off the court without assistance.
But it was his fanatical competitive streak that was truly fearsome.
Even Michael Jordan learned the hard way. In Jordan’s second to last meeting with Bryant, Jordan bested him. His Washington Wizards beat the Lakers by one point, and Jordan was the dominant player.
As the game was winding down, Jordan noted the Air Jordan shoes Bryant was wearing, and snidely commented: “You can wear my shoes, but you’ll never fill them.”
That was a mistake.
Bryant went dark. He quit talking to his teammates … shut everyone out … and he trained. Kobe added endless hours to his already inhuman training regimen.
And four months later, when he met Jordan again for the last time … he lit him up for 55 points.
This is a man who learned six languages, including Bosnian and Slovenian, just to be able to better talk trash and psychologically rattle his opponents.
He also swam with great white sharks to train himself to be fearless under pressure. (Not joking about this, by the way.)
I think I would have hated working with Kobe Bryant. (Let’s just suspend disbelief and pretend I’m not a skinny, unathletic white guy of average height, with no vertical jump and a mediocre jump shot … and that I would somehow have had the opportunity to play with Kobe Bryant.)
Playing with that kind of pressure is the sort of thing that could leave you with lifelong PTSD.
But Kobe Bryant is exactly the kind of guy I would want working for me. With the fanatical competitive drive, that’s the kind of person you want running your business.
I was thinking about this when I was reading Charles Mizrahi’s comments on rock-star CEOs — like Sol Price, founder of FedMart, who changed the face of retail.
(Sol Price, the “King of Retail.”)
Price paved the way for superstores like Home Depot, Costco and Walmart, who have all partially credited FedMart’s business model for their successes. And it all came from one strategic mind — one leader with the passion and focus to get it done.
But they all started as small businesses which grew into massive world leaders.
This is something Charles focuses on in his latest presentation: CEOs making the billion-dollar decisions to grow their small businesses into growth giants.
Go here to start watching this presentation for free.
Regards,
Charles SizemoreChief Editor, The Banyan Edge
