Dave Gilbert here, Editor of Smart Money.
Can something as old as dirt (and as dirty as dirt) really be an exciting investment opportunity in this age of breakthrough technologies and ongoing innovations?
Crude oil really is as old as dirt. Seventy percent of oil deposits existing today began forming between 66 and 250 million years ago (during the Mesozoic Era for any geologists out there).
Through the decades, centuries, and even millennia, oil has become critical to our everyday lives. It powers most of the vehicles that transport us and the countless goods we rely on. It heats many of our homes, schools, and offices.
And that doesn’t even include all of the “stuff” we use every day. More than 6,000 everyday products get their start from oil, according to the Canadian Association of Petroleum Producers, like…
- Electronics – heat-resistant plastics used in smartphones, computers, and more are made from petroleum.
- Textiles – fibers used in clothing materials like acrylic, rayon, nylon, and spandex.
- Sporting Goods – sports equipment like golf balls, skis, tennis racquets, helmets, and more.
- Health & Beauty Products – personal care items like toothpaste, soap, deodorant, cosmetics, and on and on.
- Medical Supplies – devices and medicines, including hospital equipment, dentures, IV bags, antihistamines, and countless more.
- Household products – heavy duty items like roofing and insulation, to pillows and curtains, to dishes and nonstick pans.
We clearly can’t live without oil. Demand is expected to increase for 30 more years before alternative energy sources finally begin to take over.
And now, thanks to yesterday’s big news, supply is set to shrink even as demand continues to rise. That’s where opportunity comes in… and one reason why related stocks have been on the move.
Winners and Losers as America Splits in Two
25 popular stocks are showing all the signs of an imminent crash.
And the culprit is what I call the Technochasm.
I’ve outlined some simple steps you can take today to stay on the right side of it. Ditch the 25 stocks that are getting left in the dust… And invest in companies that benefit from this phenomenon taking over the economy.
Producing Less When the World Needs More
Oil prices have already bounced 15% in less than two weeks, and yesterday, the OPEC+ alliance of oil-producing nations announced that it plans to cut oil production by two million barrels per day (BPD).
Because they want higher oil prices, which means higher prices at the pump, higher heating costs, and higher costs to produce fuel and all of those other goods we talked about.
This comes in direct contrast to U.S. efforts to lower the price of oil by releasing a million BPD from the Strategic Petroleum Reserves. The problem is those reserves are now at 40-year lows, and oil cannot continue to be released forever.
This is just the latest turn in the strange oil supply and demand imbalance that has gotten much stranger since Russia invaded Ukraine in February. Demand already exceeded supply before then, but the trend has become more pronounced and more urgent.
As you may recall, oil prices immediate surged after the war started and have been somewhat volatile ever since. The trend from early June to late September was down, but oil has bounced these last two weeks.
Even before the latest bounce, Eric Fry shared with his Investment Report readers why he thinks the lower prices were a downturn in a bigger uptrend…
The recent pullback looks like a classic correction in an ongoing bull market – a pause that refreshes.
In other words, the next phase of the crude oil bull market might begin soon.
Lots of folks believe the oil price bounce to $130 a barrel was just a “Ukraine thing” – a fluke. Accordingly, most investors seem to think the oil price will trend back down toward $60 a barrel, “where it belongs.”
I do not share that outlook.
Although the $60 oil scenario is certainly a comforting one, it is probably off target.
As I have stated several times previously, the crude market has probably entered a “new normal” in which triple-digit prices become more common than double-digit ones.
Although the oil price did pop above $100 a few times in the past, it never sustained that level for long. New crude supplies would appear and snuff out those rallies.
But today, global crude supplies are not as elastic as they once were. Rising demand will not conjure up new supplies as automatically and easily as they did in the past.
Most OPEC members and other major oil producers are struggling to maintain production, much less increase it.
Although current OPEC production has recovered to 29.6 million barrels per day (MBPD), that number is significantly below the peak of 34.1 MBPD that OPEC pumped back in 2016.
The chart below tells the tale.
And now OPEC is cutting. It’s also worth noting that U.S. production, while more robust, is also well below peak levels.
While U.S. production data is slightly more robust, it is also well below peak levels. Inventories, expressed as “days of supply,” have fallen to their lowest levels in 20 years.
The picture is very clear, according to Eric, even though a lot of investors either don’t see it or don’t believe it …
These trends are unequivocally bullish for oil prices. Yet, very few investors seem to believe them.
Meanwhile, global crude consumption remains firm, despite all the scary headlines about recessions and “falling” Chinese demand. Thus far, these scary headlines are only that, with very little substantive data to back them up.
Global demand is running about 2 million BPD higher than it was before the conflict started, while global supplies have become somewhat less reliable than before the conflict.
Those trends do not guarantee a return to $100 oil, but they point in that direction, which is one of the reasons I added a new energy play to the Fry’s Investment Report portfolio.
That latest energy play is off to a great start. Eric recommended it right near the recent bottom in oil prices, and it has gained more than 15% in just seven trading days. Even some of the giants like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) have gained similar amounts.
The new recommendation is trading for less than half its long-term average PE ratio valuation, even though refining margins are roughly double their long-term average. That gives it far more upside potential than downside risk in Eric’s analysis, which is what he loves to see. (Click here to learn more about Fry’s Investment Report and how you can access all of Eric’s recommendations, including this latest energy stock.)
Think a little bit about how many products you use every day that have a connection to petroleum. Then, understanding that supply is not able to keep up with demand, which is expected to increase for decades, it is easy to see why Eric recommends investors have exposure to this old but still incredibly valuable megatrend.
P.S. With the wealth gap being larger than ever before…
We need more people understand the phenomenon currently taking over the economy.
Eric Fry calls it the “Technochasm,” and it’s currently splitting America in two. Some are getting wealthier and wealthier… while others seem to be falling behind.
Eric has outlined a series of steps Americans should take today if they want the chance to end up on the right side of the “Technochasm.”
Because Eric is someone who successfully predicted the dot-com crash… the 2008 bubble… and even the COVID crash back in early 2020…
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.