This weekend, the Saudis surprised the oil markets…again.
Saudi Arabia cuts its oil production by 1 million barrels a day, which represents 10% of the kingdom’s production.
It’s the third production cut over the past eight months.
The oil market responded with a yawn.
The price of crude oil barely budged.
I can’t explain why the market reacts the way it does.
Oil prices are expected to rise, not stay up or fall.
My research tells me that Mr. Market is wrong about oil.
And I’m not the only one who sees what’s missing in the oil market.
The Oracle of Omaha, Warren Buffett, continues to back the oil truck.
Just last week, it added another 4 million shares of Occidental Petroleum Corporation (NYSE:OXY) to his assets.
Berkshire now owns 25% of Occidental Petroleum and that should come as no surprise.
Buffett telegraphed it (so they said 40 years ago…) to the market almost a year ago!
In August 2022, Berkshire received regulatory approval to buy up to 50% of Occidental.
And it seems to me that he is doing well.
(I have also recommended Occidental Petroleum to my Alpha Investor readers back in April 2022. To learn more about this company and others in our portfolio, Check the details here.)
Buffett has been long on Occidental at less than $60 a share since he started buying in March 2022.
Supply vs demand in the oil market
I believe Buffett looks the same as me. Like 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 OPEC cuts – now being renewed through 2024.
These cuts are well below the OPEC embargo that led to the oil crisis of the 1970s. But they show just how determined oil producers are to make the most of their vast reserves.
For its part, Saudi Arabia has pledged to build new Giga projects, fund the LIV golf circuit and Red Sea resorts as part of its expanding empire…
And they will need a fortune in oil money to make all of this happen.
When oil prices eventually rise, these types of production cuts will give oil producers even greater control over the market.
Supply Factor 2: Green Energy Agenda
Shortly after taking office in 2021, President Biden halted all new oil and gas leases.
He also canceled the Keystone pipeline and set ambitious goals for the transition to green energy.
President Biden began backtracking 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 Issues
Even if an oil company committed to drilling new wells immediately, it could take months before the facility is operational.
And drillers face severe shortages of labor and oilfield equipment.
Robert Wagoner of Dan D Drilling in Oklahoma told NPR he has 20 different tractor-trailers he uses to haul equipment for drilling new wells.
But at the moment he can only hire 2 of his 20 trucks.
This means that any new oil supply that comes online will likely lag behind demand for years to come.
But none of that means you’re going to stop driving your car.
None of this means the world will suddenly demand less oil.
In fact, it’s quite the opposite…
Demand factor 1: there is no alternative
Despite government green energy mandates, there is simply no way America will be carbon free by 2050.
Santa Claus, the Tooth Fairy and Net Zero 2050…
All the myths. I recently spoke to a White House energy insider about this on my podcast. Check it here.
Even the Energy Information Agency admits that fossil fuels will likely remain our main source of energy for at least until then.
This means that the demand for oil will continue to rise steadily – and it will likely remain the primary fuel for growth and industrialization for decades to come.
Demand Factor 2: Transport Dependence
While electric vehicles have recently improved by leaps and bounds, 97% of cars on the road are still gasoline-powered.
We won’t be switching to electric vehicles any time soon. Source.
Heavy vehicles, ships and planes still depend on petroleum for their fuel.
And these types of transport are more in demand than ever. Jet fuel/kerosene accounted for more than half of oil market gains in 2023.
And higher demand for oil-intensive transportation means higher demand for oil.
Demand Driver 3: Emerging Markets
China has the second largest economy in the world…and it’s just starting to come back online after years of strict COVID-19 lockdowns.
As a result, China and other emerging countries accounted for 90% of all new oil demand last year.
And as these countries continue to grow and prosper, their demand for more energy-intensive vehicles and products will also increase.
The world consumes 99 million barrels of oil per day and is expected to reach 108 million barrels by 2030.
While demand increases, supply remains the same and decreases due to OPEC+ cuts and green energy initiatives.
When too much demand drives too little supply, you don’t have to have a Wharton MBA to know that prices will go up.
Nothing more complicated than that.
I can’t say if they will go up tomorrow, next week or next month… but over the next five years oil will be significantly higher than it is now.
You can take care of it.
Best Oil Company
That’s why I recommend a company that will benefit the most.
When I analyzed the company, I found that it was one of the best managed in the industry.
Insiders own nearly 50% of the shares, last year they generated $500 million in free cash flow and they have no debt.
And here is the icing on the cake…
The stock is completely off-limits to the biggest Wall Street companies and investors like Warren Buffett.
I’d bet Buffett would love to buy it, but he can’t…it’s too small for investors like him.
But this is the perfect opportunity for Main Street investors like you.
I guarantee you will like what I have to say in This interview.
You can thank me later.
Founder, Alpha Investor
Los Angeles Lakers star Kobe Bryant was a terrifying talent.
I recently fell down the rabbit hole watching old basketball clips and interviews on YouTube. Until I realized, with horror, that four hours had passed and I had lost half of what would have been a productive day’s work.
(Worth it, by the way.)
For starters, Bryant’s drive to overcome pain was legendary. The man tore his Achilles tendon on his way 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 field unaided.
But it was his fanatically competitive streak that was truly scary.
Even Michael Jordan learned the hard way. In Jordan’s penultimate meeting with Bryant, Jordan beat him. His Washington Wizards beat the Lakers by one point and Jordan was the dominant player.
As the game drew to a close, Jordan noted the Air Jordan shoes Bryant was wearing and snidely commented, “You can wear my shoes, but you’ll never fill them.”
It was a mistake.
Bryant went dark. He stopped talking to his teammates…excluded everyone…and he practiced. Kobe added endless hours to his already inhuman training schedule.
And four months later, when he met Jordan again for the last time… he turned him on for 55 points.
He’s a man who learned six languages, including Bosnian and Slovenian, just so he could talk trash better and psychologically shake his opponents.
He also has swam with great white sharks practice being fearless under pressure. (I’m not kidding about that, by the way.)
I think I would have hated to work with Kobe Bryant. (Let’s just hang disbelief and pretend I’m not a skinny, unathletic white man of average height with no vertical jumps and a mediocre jump kick… And that I would have somehow had the opportunity to play with Kobe Bryant.)
Playing under that kind of pressure is the kind of thing that could leave you with PTSD for life.
But Kobe Bryant is exactly the kind of guy I’d like to work with. For Me. With a fanatical competitive spirit, this is the kind of person you want to run your business.
I was thinking about this when reading Charles Mizrahi’s comments about rock star CEOs – like Ground pricefounder of FedMart, which changed the face of retail.
(Sol Price, the “king of retail.”)
Price paved the way for supermarkets like Home Depot, Costco and Walmart, all of which partially credited FedMart’s business model with their successes. And it all came from a strategic mind – a leader with the passion and focus for do it.
But they all started as small companies that have grown into massive global leaders.
That’s something Charles focuses on in his latest presentation: CEOs who make billion-dollar decisions to grow their small businesses into growth giants.
Charles SizemoreChief Editor, The edge of the banyan