The KCR research team has worked in the investing business for an embarrassingly long time. As in prior manias, the consensus view has become dogma today. With legions of followers on social media, the effect is only more powerful in this cycle than in the past. Those sucking investors into the most overpriced and fundamentally weak stocks since the dot.com bubble preach from a pulpit of uncommon power today.
You will not find KCR following suit. The cacophony of freshly minted geniuses and their many admirers who echo their views can be found….everywhere. Our Charts for the Curious, Quick Takes and in-depth Research detail the record levels of overpriced promises masquerading as credible investments.
We have been and continue to be bullish on America. That we refuse to subscribe to a newly popular and arithmetically impossible set of promises from the greatest investors of the last couple of years does not make KCR a pessimistic organization. Quite the contrary: as regular KCR readers know, we believe the mania underway has created some of the greatest investment opportunities in our lifetimes.
The Wall Street Journal wrote an article noting that the emergence of the Delta variant had rattled oil prices. We hope for humanity that this new strain and others like it can be shut down quickly. Regardless, we continue to believe energy’s prospects look promising for long-term investors.
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The case for low crude oil prices comes from the intersection of the good intentions of ESG investors and the hype around “peak global oil demand.” We use the term “hype” simply because we believe it is just that: hype. Reuters recently published a convenient summary of various “peak oil” theses here. Some brief details on our view are below and in our White Paper on Energy Investing next Wednesday.
Today, we will keep it simple and appeal to what we believe are the most obvious facts. Figure 1 shows the inflation-adjusted capex spending of all US energy companies is at levels last seen in 2000.
Oil Rigs and the Correlation with Rising Oil Prices
Legendary commodity trader, newsletter writer and mentor-to-many, Dennis Gartman would frequently quip that “the cure for low prices is low prices and the cure for high prices is high prices.” Over many years that maxim has indeed proven true. One of the KCR staff is forever indebted for his kindness and tutelage.
Figure 2 shows the incredibly consistent nature of this effect as the rig count reliably follows the oil price:
- The peak in oil price in late 2007 sent 2,000 rigs into motion – a number that produced millions of barrels per day in new supply
- Surplus oil production plus the economic slowdown from the GFC sent crude prices, gasoline prices and rig counts lower
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August 25, 2021 |
| Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
August 25, 2021
Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
