Oil Is About To Shock The World, Why Price Could Double | Josh Young
Summary
Oil Price Forecast: Josh Young predicts a potential doubling of oil prices, possibly reaching over $120 per barrel, driven by tight market conditions and geopolitical factors.
Supply and Demand Dynamics: Current oil prices are lower than expected due to surplus supply from Iran and OPEC, but a future tight market is anticipated as spare capacity diminishes.
Geopolitical Impact: Potential peace in Ukraine could lead to increased oil demand for rebuilding efforts, while tensions in the Middle East continue to pose risks to supply stability.
Gold-Oil Ratio: The current gold-oil ratio suggests significant macroeconomic shifts, with historical trends indicating that rising gold prices could lead to increased oil demand.
US Energy Independence: The notion of US energy independence is challenged by strategic disarray and reliance on foreign oil, despite being a major oil producer.
Investment Strategy: Young favors investing in onshore drilling rig companies and small producers with strong assets, viewing them as undervalued opportunities with potential for high returns.
Market Outlook: Despite current bearish trends, underinvestment in exploration and geopolitical risks support a bullish long-term outlook for oil prices.
Newsletter Insights: Bison Insights offers analysis on value-priced oil and gas stocks, highlighting special situations and macroeconomic trends impacting the energy sector.
Transcript
I think there's really only one way this resolves from a price perspective. And I think it's just a matter of time before we get into an environment where we hit multiple all-time highs. New all-time highs would imply oh 2x or 1x from here, doubling a price because it has to go above $120 a barrel. Oil is on the cusp of a major breakout to the upside potentially surpassing new all-time highs, says our next guest, Josh Young, CIO of Bison Interest. Well, that would imply a 100% move from current levels at least. So, what does this mean for uh global war and conflict? What does this imply for geopolitical stability? What does this mean for the Middle East uh Ukraine? Uh and what does this mean for inflation? We'll find out with our next guest. And uh Josh, welcome back. Thanks for coming back. You're also the author of a brand new newsletter. So, congrats on that launch. Uh tell us uh what is the name of the newsletter and high level, what is it about? Sure. Yeah, it's called Bison Insights and we're sharing one or two valuepriced oil and gas uh stock ideas a month. You you also, you know, I was tell joking with you offline. You, you know, your your main day job is still managing Bison Interest. So, I'm impressed that you've recently launched Bison Insights and still have time to do everything at once. But we'll get to some of these insights from Bison Insights uh very shortly. Just start big picture with what you think is happening with oil. It's hovering around $63 a barrel right now as we speak crude and uh it's been trading rangebound for quite some time. It's had a bit of a rough summer and if you take a look at this chart here that I put on the screen we had a huge spike in the middle of the summer June that may have something to do with the Israel Iran situation but that was shortlived. So uh overall how would you characterize the supply and demand dynamics of oil right now and how bullish are you still? Yeah. So, um I'll acknowledge that I thought oil prices would be a lot higher here and I was wrong. And I think it's important when you're considering macro markets to be able to uh identify where you were wrong and when and then to be able to calibrate based on the new information and figure out what might happen next. So, uh oil prices have done worse than I expected partly because there's been more oil uh that hasn't been off the market. So Iran for example that spike earlier this year um was around the Israel Iran war and then the US bombing and ending that rapidly and there was a risk of a supply disruption which would have sent oil prices well over 100 and instead Iranian oil is fully on the market. So, I didn't think that oil would be fully on the market for Maran. And I also didn't think it would all come off. And so, it all being on the market right now along with several other places that historically had some amount of disruption, I think, has been sort of the tilt down. Um, the big thing that's changing right now is that OPEC is bringing essentially almost all of their spare capacity back onto the market and has already expanded its quota significantly. And yet oil prices are here in the mid60s and not at 40 or 50 or 30 or wherever the different banks and macro pundits that were bearish forecast. And so the great part is looking forward as that oil gets digested going into 2026 and 2027 there won't be that spare capacity and there's going to be a tight market. So I think there's a very bullish outlook going forward with all of this oil both from Iran as well as from the OPEC countries either on the market or coming on very soon and the market being able to digest that through significantly higher than expected demand. I want to come back to your oil forecast in just a minute, but I want to show this chart first. This is the gold oil ratio. It's reached levels not seen since the pandemic according to research. And I'll just read a paragraph from this report. Historically, extremes in the ratio have reflected the onset of major macro shifts. When the ratio had last rose above its current level, the 2020 pandemic was unfolding. Now, gold has climbed over 90% in 3 years to around $3,400 USD per ounce, while bread has slid to USD $66 per barrel. It does seem interesting how on an inflation adjusted basis, oil has actually declined versus other commodities. And um again, on an inflation adjusted basis, you're probably paying less of the pump than you did 5 years ago. But I'll let you analyze this chart and whether this has any significance for you. Yeah, it it's actually very significant. One of the ways in which oil demand has surprised to the upside has been on the diesel side and there's been essentially when you look at the different bank reports and different agencies and so on. Um they just have this black hole in their numbers and their their demand is way higher. And if you look at this chart, this tells you where it's going, which is mining activity. First came gold, now is coming copper. And then next up is coming oil. And so really I think OPEC saw this need for oil on the market specifically diesel. And that need is getting met to the extent that gold prices continue to rise which I don't have a strong view on but if gold if this ratio continues this is amazing for oil demand and historically gold has led and then oil follows. And so it's very exciting. This explains again a big open question in the oil market and most analysts don't look at both oil and gold. So it's great that you brought this up. Uh this wasn't prompted by me which is pretty exciting. Um and again when you look back at 2020 and this this ratio like you mentioned blew out there that was an amazing time to buy oil and related equities. And I would argue that right now is also a great time to buy oil and related equities. Well, uh, given that it's a great time, if we were to assume that this ratio inverts back towards the mean, meaning it falls, what does that imply for the, uh, Brent crude price? Um, I mean, this ratio implies a number for Brent crude, uh, that would almost be embarrassing to mention on air. Uh, I mean, this is really signaling all-time high prices for oil to the extent that gold prices don't collapse. So if one is a gold bull and a dollar and currency bear, then one should I would argue also be very much an oil bull. And like I mentioned in the introduction, oil is a energy input for basically all things if oil were to rise and if this is a good time for investors, what does that mean for inflation going forward? Well, right now we've been tremendous beneficiaries of low energy prices in sort of the general economy in the US and the world. And so I think, you know, sometimes we're given economic gifts. Unfortunately, I would argue that our policy makers and our governments have sort of wasted them on um you know, fringe benefits and wasteful spending and so on and have still run up record deficits despite low energy prices. And so looking forward, I would expect higher energy prices and potentially more inflation or maybe just shifts in spending from some of these other categories over towards energy. Now Putin and Trump have met earlier this week followed by a meeting between Zilinski and Trump and EU and NATO um leaders. We'll talk about uh this in the next segment. What are the major geopolitical events right now shaping oil? And do you think that this deescalation potential deescalation of the Ukraine war as signaled by these summits in the past week may be a headwind for oil? Two-part question. Yeah, so um hopefully there's peace. Unfortunately, it doesn't look very likely right now, and we'll see. Um, and if there were to be peace, there's actually not much oil from Russia off the market other than from direct physical disruptions from kinetic attacks by Ukraine, which has kept about half a million barrels a day off the market from Russia. If there were to be peace, my expectation is that there would be substantial financial uh grants and loans given to Ukraine to rebuild and there would also likely be a rebuilding process by Russia. That rebuilding would be extremely oil inensive and could actually use way more oil than the small incremental amount of oil that would come back on from Russia. So, I would actually see that as bullish, not bearish, maybe bearish over a one or two-month period as that immediate oil comes back on, the small amount that's been disrupted, and then extremely bullish as you use 2 or 3 million barrels a day for the next few years to go rebuild these destroyed cities and industrial bases in Ukraine and in Russia. And if there is peace, uh, would you think that maybe Russian sanctions would be lifted and Europe resumes buying Russian natural gas and oil? Yeah. So, I would expect that over time. That's probably a likely requirement for Russia. And again, that's where I hope for peace, but I don't know that it's very likely here. I would expect that dropping sanctions would be necessary. And um so that would be again, there's not much oil off the market. There is a lot of natural gas off the market from Russia, but Russia has ramped its exports east significantly to China. Um they put in a pipe and they're also sending some LG. And so, you know, there is potential supply to Europe, but I'm not sure that that destroys the global LNG market like some are forecasting. I think there's an argument for reasonably strong natural gas prices to Europe and Asia via LG going forward, even if there's a a peace situation. I think Europe really suffered from having sort of myopic bad energy policies and I think they've recognized that it's important to have two suppliers of natural gas, not just one. So, I would expect sort of a let's say at least $8 in MCF price for LNG. Uh, right now it's at around $10 $11 or so in MCF. So, not too too much downside from current price levels and still significant potential demand for natural gas from places like the US. What about uh the Israel, Iran, and Middle East situation? Earlier in the summer, as tensions escalated, we saw a brief spike in the oil price. I'll pull this chart up again. That happened in uh June like I mentioned earlier. uh can you briefly assess uh what's going on in the Middle East and whether or not any more hotspots may emerge? Yeah, so there have been a few sort of kinetic um interactions between direct interactions between Israel and Iran and to the best I can tell they look staged in the sense that um there there was not clearly an effort by either side to win per se. uh you would win in a war against Iran by destroying their energy export infrastructure in order to deprive them of funds to fight back and you would win against Israel through sort of similar attacks and I think Israel or sorry Iran maybe tried harder they hit some of Israeli infrastructure Israel did not hit similar Iranian infrastructure and so when you saw there was a risk that Israel would actually take this most recent conflict seriously which is where that price spiked and then when it became clear that they were not actually serious about defeating Iran ran um and were just engaged in yet another one of these sort of theatrical moments. Um that's where you saw the price that red was almost straight off a cliff line down. And so, you know, we we'll see. I think I think there is a case that over time, especially if we're able to get into a ceasefire event with Russia, uh which again would be wonderful. I hope that happens. Um that the US would enforce more sanctions on Iran and some but not all of the Iranian supply would come offline. And that would be an argument um at current supply demand levels for oil, let's say closer to 75, which is sort of where we saw some of that geopolitical risk priced in around that event. In that sort of situation, 75 versus the current, let's say 64 or so. So we're looking at $10 of geopolitical risk premium every time roughly. Uh sort of I was saying that would just be from Trump sort of doing what he said in terms of enforcing sanctions if there were an actual supply disruption. If Iranian exports were bombed, if there was some other sort of disruption in the straight of Hormuz or so on, uh there there would be upside that would be let's say $30 plus a barrel, not not just the 10 from, you know, just promised sanctions being enforced again. You think that with the Strait of Hormuz being so geopolitically sensitive, the US and other nations would have found alternatives to shipping lanes, but that hasn't happened yet. Well, the Saudis built a multi-million barrel a day pipeline to be able to send oil west, ironically, into the Red Sea where they have a problem with the Houthies. So, you know, there there are some of these redirections, but they're they're imperfect. Um, so yes, there are some sort of partial solutions to this. um not full solutions and and frankly I think it's something like 20 or 30 million barrels a day goes through the street of Hermuz and there's only about five million barrels a day of capacity for oil to go west through Saudi so you know there'd still be a significant problem and as a reminder uh industrial commodities uh real commodities like oil they price on the margin and so if you have a 1% surprise to the downside to supply you can end up with a you know 20% or so price movement in either direction and so you know a surprise of you know 10% % or 15% of supply or more could send a price movement that's much higher than that. You know, it could be a $50 or $100 type price movement um from let's say that sort of 10 or 15% type supply disruption. Ultimately, why do Americans and and the WTI price care about what's happening in the Middle East? Can the US not just turn up shale production to offset any disruptions in the street of Hormuz potentially? So, so this is great. I was just at an energy conference actually chatting with some folks from some of the oil majors and I think they've actually this is a really big topic. They got lost. They used to have this idea of being integrated where they would produce oil and gas, they would ship it themselves, they would process it themselves and then they would sell the end product at gas stations. These days they've like gotten distracted by all kinds of different shiny objects and they don't do that anymore. So Exxon will produce oil in West Texas and then shift ship it to West Africa to refine it. Instead of refining it in their refineries, they're starving the refineries of capital. It's part of why they catch on fire and explode, unfortunately, frequently. And so they're not integrated anymore. They're sort of these hodgepodge of assets. There's a little integration, but not nearly as much as they did they had historically. And so that's put US energy security at risk because we have these refineries that need foreign oil and then we export our oil um from the US. Similar to Canada, we export. It's this weird mess. And again, it sort of makes sense if you try to live in a capital starved world. But there's this big miss in terms of the opportunity for the Exxons and Chevrons of the world to be very efficient and the best at what they do. And instead, they've just sort of accumulated these assets. You even had this weird thing, right? You had Exxon and Chevron fighting for offshore oil assets off Gana which is sort of politically unstable and has all kinds of questions around um their their safety being next to Venezuela and there's a lot of uncertainty around their fiscal regime and you have these guys fighting for that instead of figuring out how to sort of more cost-effectively produce and process the oil that they produce in the US um to process it and then sell it at the US gas stations that they own and control. So, it's a very weird I think they've got lost and I think Rockefeller is spinning in his grave a little bit when he uh when he sees some of this. So, that's that's the problem I think. So, so you're saying energy independence in the US is not fully realized today. It's somewhat a myth. Can we go as far as to say that? Yes. Yes. I would say it's a myth and again I think it has to do with sort of strategic disarray and sort of a movement away from the standard oil model towards these sort of like marketing investment bank sort of movements at these major oil companies that control a big portion of the supply in the US and abroad overall then is this narrative that we could have disruptions supply-wise in the Middle East and abroad does that not present a bullish case for US producers at least in the short term? Yeah, absolutely. I think there is geopolitical risk. I think it's not priced in. And like we were saying, I think even just modestly better energy and trade policy by the US could give us back, you know, 10 or $15 of price even in a situation where you have OPEC bringing back on supply. So I think there's some real nice asymmetry here. And again, I don't think that oil should necessarily be $100 here with the current supply demand dynamic, but I think the path towards marginal sanctions enforcement on Iran and sort of normalization, uh, I think there's a decent shot at sort of a $75 plus oil price through the end of the year. Very good. Well, let's talk about some of the findings or reports highlighted in your recent newsletter. Um I will uh just let you comment on uh the summary and then people can go to the link down below uh and sign up and read more. Awesome. Yeah. No, thank you. Um this is a fun it's sort of like a passion project. It's called Bison Insights and um what I do I've learned a lot about the oil and gas markets to try to lose less money on stocks. And so uh but where I spend most of my time is focusing on sort of these individual companies and special situations. And with so many people bearish on oil and not really understanding natural gas, there's lots of these sort of off the-run special situations that that it's fun to to chat about. So far, we've written about one natural gas producer that is post bankruptcy and it's the joke is that it's sort of like hard to buy but easy to value. And then this next one we wrote about is uh warrants that also actually post bankruptcy um where the company has been uh sort of it looks like not quite misbehaving but shifting value from the warrants over to the equity and there's a court case going on and I don't like to bet on litigation but I really like extremely positive expected values. It's a potential 30x from where we wrote about it uh in a win situation and it seemed like a positive sort of 5 to 10x expected value risking that legal win and then also just having lots of upside to natural gas and oil prices. And then there's one there's one insight that we had um so we decided to publish some of the macro analysis that's that's leading some of this stuff within the newsletter. And the one thing I think people will find really interesting that's different from the consensus on US natural gas is that shale wells, natural gas shale wells based on the EIA data um have been declining in productivity on a per foot basis. And so what that means is the wells are getting longer. So the actual production is growing, but it's one of those things the second derivative is negative. So as you get less productive on a per foot basis, eventually you run out of feet to drill. uh you can only get so long, you can only get so efficient. Then as you run out of those efficiencies, production per well should start to decline. So the per foot productivity is falling. And we're seeing that in um in various different statistics, including in the rising values for acreage and assets for natural gas. So the industry understands this, doesn't want to talk about it, and it's getting reflected in valuations more and more. And so finding the companies that are the biggest beneficiaries of that has been a theme for these first few issues for Bison Insights. You can see from data that actually during the Biden administration uh oil production in the US peaked. And uh this may have surprised some analysts initially uh given that they were less friendly to uh oil um and gas policies than perhaps the previous and current administration. Have you seen any policy changes regarding permitting, zoning, and just gas, oil and gas in general now that Trump is in office and whether or not uh these policy changes can affect production in the next 3 years? Yeah. So, I think I think what you meant was that um in the Biden administration, we saw we saw growth. It did it did peak towards the end, but there was substantial growth in production for those first few years in the Biden administration. And so um it's it's weird because they were very negative from a regulatory perspective towards US producers, but then they also restricted some Russian oil exports and were a little less favorable towards um friends. Ironically, they were nice to our enemies uh internationally, but but not so nice to our oil exporter friends. Um and so now the Trump administration has sort of reversed this a little. Um, but so so the permitting is better, the regulation's lower, the taxes are better, but at the same time, the Trump administration, um, you know, I I' I've had people that are like helping them basically tell me they're frustrated because they're not doing what Trump said in terms of the maximum pressure on Iran and Russia and so on. And so by waving sanctions enforcement, one, it makes the US look weak unnecessarily. It makes many people think that sanctions can't be enforced. And again, they can. they're just choosing not to to the increasing frustration of their employees as well as to their service providers and so on. Um but then that is more than offsetting the benefit of lower taxes and lower regulations and easier permits. So it turns out the bigger thing is letting Iran export you know 3 million barrels a day of oil and condensate and using that money to you know attack Israel and you know attack our soldiers and so on. um that matters more for oil drilling in the US than the permitting challenges that we had under the Biden administration. So hopefully that wasn't too political. It's just sort of trying to figure out, hey, why is the rig count falling under Trump? It turns out that helping Venezuela and helping Iran sell their oil hurts West Texas more than making it a little harder, easier to permit wells and get drilling. Is the Trump administration helping Iran? because I'm reading some reports that show that uh actually they're maybe maybe indirectly but now they're sanctioning people in countries that are dealing with Iran. So the Trump administration on Thursday issued more Iran related sanctions targeting 13 entities based in Hong Kong, China, the UAE, Marshall Islands as well as eight vessels. The US Treasury Department said the measures cover Greek national Antonio's margaritas and his network of companies and vessels that Treasury said was involved in transporting Iranian oil exports in violation of sanctions. I mean, people don't want to be sanctioned. So, I I wonder if these sanctioned measures are going to have any long-term immediate consequences for people dealing with oil uh Iranian uh oil exports and whether or not that's going to change the way people or certain entities buy their oil. Yeah, it's a great question and those are real headlines and that is really happening. The problem is scale and so it's also time, right? So this is happening in August and didn't happen in January when the promise was and the pressure was in January and I think it was tanker trackers as well as several others that have reported on this where if you look at the hundreds of ships that are involved in this sort of dark fleet, it's apparently extremely easy. I think Anas has talked about this several others. They'll like post these maps on Twitter, right, where literally you can see tankers transporting sanctioned oil. So, it's not hard to see. And, you know, they're they're getting these headlines. They've started doing this recently at a very small scale, but for every one tanker that's being sanctioned, there's 10 that aren't. And you're not really seeing punishments, per se, for the people doing it. Yeah. Like individual, a few people have been sanctioned, but you're not seeing seizures of assets. you're not seeing the closing down of financial networks. You're just seeing a few folks getting picked on. And my guess would be, I don't know this for sure, my guess would be that some of this is sort of political and sort of um you know related to to the specifics of those people rather than the activity based on the very small amount of enforcement versus the large amount of this smuggling and sanctions breaking activity. So that would be I I hear you. There are these headlines. They are real. And then the threats on India for importing Russian oil are real. But then China just went and took all of there were reports that they took something like 50 million barrels of sanctioned Russian oil um that that India or maybe it was 10 somewhere in there uh you know tens of millions of barrels of uh sanctioned Russian oil that China just their their refiners bought and um brought into uh into their country uh that was supposed to go to India. So it doesn't really there hasn't been a real impact and my comment was based on the order of magnitude of this where it looks like they've shopped for these headlines rather than actually shopping for the hundreds of tankers that they're not doing anything about. So then overall are you more or less bullish on US companies operating in the US not abroad now than four years ago under Biden? Um I'm more bullish now because the valuations are lower and um you know it depends on the company. There are some companies that have depleted a lot of their inventory and they have real issues. And there are other companies that have wisely invested. In some cases, the market hates that they've done this. They've gone and bought inventory and bought assets at a time where people thought that was stupid. And those companies I like, some of those I like the best because they're discounted because oil and gas is out of favor. They're discounted because oil and gas equities are being sold and out of favor. But they're not the ones that have the problem. they've been investing heavily in their future. So those companies in particular I think are extremely promising here given the general activity of drilling too much essentially and and reducing inventory across industry as well as the suppressed prices um from first the Biden administration trying to suppress prices and hurt the producers and now the Trump administration trying to suppress prices in order in order to help consumers. What do you mean by suppress prices? Well, so the Biden administration um you know came in and and dumped uh oil from the SPR and materially impacted uh prices in the short term and then Trump through waving sanction enforcement on Iran and Russia and Venezuela has suppressed prices. Um and then also uh openly I think asking the OPEC countries to produce and export more oil. So it's very weird. We're the largest producer of oil in the world of oil and NGL's and higher oil prices are good for our economy. It's not great for consumers that aren't related to the industry, but overall as a net exporter, it's a simple GDP calculation. Uh the GDP impact, if you're a net exporter of something, if the price goes up, it's good for your economy. And there's lots of complications around that, but it's sort of that part's simple. And so it's very weird to have different parties, presidents in office, both trying to do the same thing. That's like bad for the US economy. Um, but it sounds good, I guess, politically. Well, remember Scopa's 333 promise around inauguration time, 3 million additional barrels produced per day, 3% GDP, 3% inflation, I believe. Right. So what what what does that what what what does that mean for oil uh long term? I mean I mean this is an administration that has openly said that they want lower oil prices. So how can somebody be bullish in this particular environment? Um and maybe let's evaluate what they've done so far. You know that's great. So first of all I think it's uh should not be surprising that Bessent would be uh pushing a sort of bad idea economic policy if you look at his funds returns. No one ever wants to talk about this but like he did not do well. Just because he worked for someone famous doesn't mean that he had this he didn't have a storied career. He was not a high performing company. I misspoke. By the way, it's not 3% inflation. I meant 3% uh federal deficit as a percentage of GDP. But anyway, I'll let you continue. Sure. Yeah, the 333 plan. That's fine. Um and then they they went back and forth on, oh, we're going to grow oil or we're going to grow BOEs, which is really they going to grow gas. They need to grow that gas. So, that would be possible if they tried. Um but look, I think I think it's just it's really unfortunate. You have essentially a gerontocracy in the US and some other countries. You have old people who don't change their minds much treating the US economy and the global economy as if it were the same as it was 30 or 40 years ago. 40 years ago, higher oil prices were terrible for the US economy. The US was a massive oil importer. Now, the US is a net oil exporter. Higher oil prices are good for the US economy. And again, it's just as simple as that. And so you have people that are sort of afraid to tell Trump who's sort of notorious for not receiving feedback. Well, um afraid to tell him essentially that higher oil prices are actually good and you should like sort of start to change his narrative. Um but you're also seeing the industry respond through a much lower drilling rig count on the oil side and a much lower frack spread count. And so, you know, these things take a little time. There's about a six-month lag from dropping rigs to affecting production. So, you know, I think we'll see by the end of this year likely lower oil and natural gas liquid production, which would be a violation of their promise. So, we'll see what they do in order to um try to juice US production. But I think it's a sort of contradictory and likely to fail energy policy. And then in terms of how I can be bullish, um price controls, price suppression always backfire. It's just a question of time. So, will oil prices be higher end of this year, end of next year? I don't know. But they will be eventually much higher because you can't you can't print the molecules and they are printing a lot of a lot of money. So when you print a lot of money and you're not printing more molecules and you're getting less drilling not more in the end that's going to lead to much higher prices. Another indirect way that Trump is suppressing oil, and I say indirect because he's not, you know, perhaps he's not doing this intentionally with a purpose of suppressing oil, but tariff announcements, big ones, have all had a big impact on oil immediately after announcement. April 1st was liberation day, and you saw what happened to oil immediately shot down, I believe 9%. Yeah. Oh, no, eight more than that. 18 n 20% uh overnight over the course of the week. Um to a lesser extent the uh new tariffs implemented August 1st uh saw oil fall immediately thereafter as well although to a lesser extent because they were smaller tariffs. So let's evaluate that headwind that risk and whether or not tariffs are off the table for now or we can see more dips if Trump and co decides to um double down. Yeah. So um I think the big thing that happened with liberation day with that tariff announcement was that as that was happening OPEC was actually increasing their quotas and telling the market that they were going to bring back essentially 2 million barrels a day over the course of this year. So it was sort of they actually did this in 2020 where as the world was shutting down um they got into a price war. So this wasn't a price war this was different. Their view was that there was going to be more demand for oil not less. And actually so far they've been right on their demand numbers. So um they faded Trump's tariffs and frankly the right trade was to fade Trump's tariffs. If you look at where the stock market is broadly, if you look at where consumption is across a number of different characteristics or a number of different aspects of the economy um you know Trump has had sort of a very um you know on again offagain sort of approach towards these tariffs which makes it difficult to assess. What we do know is that the US deficit is running at record levels. We do know that or or nearrecord levels for peace time and so on. Um we're seeing nearrecord deficits across the developed world and then we're actually seeing some significant stimulus in China and elsewhere. So you know how much will there be a real impact of tariffs I think is still a very open question and I think it could be articulately argued in both directions. And frankly, I love your show and I've listened to a number of people make arguments on both directions uh who who can are better situated than me for that. I'll just point out OPEC was raising production. That's why oil went down so much and we're printing so much money that it could offset at least short-term some of the real impact of of these tariffs. I wonder what the uh structural reason for this bare market and oil uh could be attributed to. If you just zoom out like I've done here and you look that you look at this chart, you can probably you can see that oil has somewhat been in a structural bare market ever since its peak in 2022 where it was double the price that it is now. What happened in the last 2 years, 3 years. So um in from the March to June time frame of 2022, it looked like there were going to be serious sanctions and sanctions enforcement enforcement, sorry, on Russia. And it looked like there were going to be millions of barrels a day from Russia that were going to come offline. And instead of that happening, there were price caps that were announced and uh essentially there was a whole regime designed to uh allow Russian oil to continue to be exported and continue to be bought. It was a very sort of weird cynical policy where the US and Europe were sending money and weapons to Ukraine to fight Russia, but then also for a lot of the time Europe was actually buying Russian natural gas. And Europe and and the US were sort of allowing and Canada were allowing and sort of greenlighting and creating a whole legal environment for Russia to be able to export their oil. And there were multiple there was a big French company, there was a big US company providing oil field services to Russia for most of this time frame. So instead of there being millions of barrels a day coming offline from Russia, we saw almost none of that. And so the political leaders in the US and sort of the broader sort of G7 decided that they'd rather have, you know, hundreds of thousands of young men and women in in Russia and Ukraine die then and and sort of continue and perpetuate this war than have higher oil prices. So it's pretty extreme uh in terms of that sort of uh sort of cynical economic policy decision. But that's what you're seeing there is Russian oil, if you look at a chart of it, it was disrupted very temporarily in April of 2022 and then it came almost all back on. So, um, they say that there's never been, what is it? There's never been a a shortage without a glut afterwards of any commodity. And so, you know, I think we're seeing that a little bit. And I think it's a nice setup because there's been underinvestment due to this longer oil bare market for the last decade or so. And I think we're going to see the impact of that. But there's been so many of these um sort of divergent and odd and cynical economic policies in the short term that I think have suppressed the price. And that's where, you know, I think I'm not saying I think Russian oil is going to come off the market. I think it'll probably stay on um as we've seen. Um even with that, I think we ultimately will get to a higher price than we saw in 2022 um as a result of this underinvestment. And like you showed, I think that gold chart is key. It it shows you the impact of inflation and just such an important demand driver that again, I'm just not seeing it. I keep talking about it publicly. Hopefully eventually I'll see it in these supply demand models, but there's hundreds of thousands of barrels a day of incremental diesel demand for these mines. And people are expanding more mines. They're building new mines. It's great. It's great for the commodities. It's great for the world to be able to have adequate industrial and precious metal supplies. Um, finally we're seeing new mine activity and mine expansions and that is translating to oil demand and it's going to translate to a lot more. And this could be both from the money printing and from the physical demand. This could be one of the drivers in addition to sort of general economic growth in the world and whatever. Um, this could be one of the sort of incremental drivers of much higher oil prices in the next few years. When COVID hit, we saw oil plunge to zero and at some point the futures went to negative um for a variety of reasons as global trade and commerce basically halted to a standstill. Now I I I I'm not saying that people expected that to happen uh following liberation day, but there was speculation that tariffs would slow down global trading activity, thereby reducing the oil price. Um, and that did happen momentarily like we just talked about, but it wasn't a sustained crush on oil like we saw in early 2020. Were you surprised by this? Yeah, I mean honestly, Liberation Day was shocking. Sort of similar to uh COVID lockdowns. I think we're seeing just these like rolling uh economic policy failures by governments in the West. And you know, there's longer conversation about what's happening and why and so on. But that's part of what has me so bullish is they're making these giant economic and policy mistakes and then covering it up by printing just unprecedented amount of uh money. And so again, when you look at that gold chart, it just tells you so much. It tells you that we're really messing up. It's not that everyone has decided that they want more gold jewelry, right? This is not some big trend towards, you know, a whole bunch more gold jewelry. that people are reflecting on this money printing and economic policy failures. So yeah, liberation day was shocking. It was bizarre and then within a month Trump had capitulated and you we were off to the races again with the stock market and you still see Trump tweet every now and then on the stock market bragging about it involved with cryptocurrency pump and dumps and other sorts of griffs and schemes and that sort of environment. Again, it's very concerning if one is on a fixed income because there's going to be a lot of inflation on the backside of this sort of nonsense. Um, but it's very promising, I think, as a commodity producer, especially with a chart like this for oil where we have so little and you look at the rig count and you look at international exploration where you'll see these individual discoveries get announced, but there's so few of them versus so many um that like we used to see historically. And so um and I see you're looking back in time if you look I mean we have this time frame from essentially November of 2014 where OPEC decided that shale was growing too fast and they really wanted to punish shale producers and crush the price where there's been almost no incremental exploration and delineation for oil um globally for the last decade uh plus and so I think that's a really nice setup and you know I don't know exactly and again I I I'm think generally optimistic and I think In this sort of setup, it makes sense to be biased bullish in the short to medium term. But I think there's really only one way this resolves from a price perspective. And I think it's just a matter of time before we get into an environment where we hit multiple all-time highs and that induces sufficient investment to get us back into a potential future true overupp situation. And so absent that, you know, I think it makes sense to be really bullish oil. And then especially again in a mining environment like we're seeing with a precious metals price environment and copper prices and so on. I mean you're going to see a lot more of this development. You've seen tons of equity raises for mines uh and mining companies and you know I think I think things look really really good from that perspective. New all-time highs would imply 2x or 1x from here doubling of prices because it has to go above $120 a barrel. Okay. So given this thesis how are you playing oil? Are you using futures? Are you buying companies? And if so, are you buying the smaller ones, junior explorers? Are you buying the bigger producers? What's your play here? Yeah. So, so I'm buying uh producers and services companies. Um, actually, I think my favorite right now are the drilling rig companies. There's drilling rig companies onshore. So, the value guys and the generalists are all buying the offshore ones, but those are complicated and there's their own, it has its own sort of set of risk factors. and the next maco could put the uh one of these, you know, the the big BP oil spill in the Gulf. Um the next one could put one of those drilling rig companies fully out of business. So, I prefer onshore to offshore. And these companies trade for pennies on the dollar relative to the replacement cost of their rigs. And the history is in every cycle you go from trading at a large discount to replacement cost to a large premium uh to replacement cost in order to induce investment to build new rigs and invest in new technologies. So I love them. And then I really like some of the small producers like I was saying that have sustained their inventory and made acquisitions and gotten punished in the market in the short term that trade at two times cash flow, three times cash flow somewhere in there. really low valuations on really excellent assets and the market doesn't like it. Partly because of passive, partly because people don't like the sector and the stock charts in many cases look terrible and people trade these on technicals when the reality is there's tremendous intrinsic value and a lot of upside. And we've seen this in times like that 2022 2021 time frame where you saw prices rise and these stocks way outperform. And I think there's many different arguments for getting into another environment like that. And if we don't, they're already priced for a lot of downside from a commodity price perspective. So it's sort of uh those famous investor Monish Par likes to say uh you know he likes heads I win, tales I don't lose too much. And so I feel like it's really set up like that here. Excellent. Thank you very much Josh. We'll leave it here. Where can we learn uh about your work and go to read about uh your uh research? Yeah, I'd encourage people to check out Bison Insights. Uh just Google Bison Insights. Bison Insights.info. Uh real excited about this project and it's a good way to see some of the the types of companies that I'm investing in. Awesome. We'll put the links down below. Check out Bison Interest there or insights rather. Bison Insights. Bit of a tongue twister. All right. We'll see you next time. Josh, thanks for coming on. Thanks for having me. Thank you for watching. Don't forget to like and subscribe.
Oil Is About To Shock The World, Why Price Could Double | Josh Young
Summary
Transcript
I think there's really only one way this resolves from a price perspective. And I think it's just a matter of time before we get into an environment where we hit multiple all-time highs. New all-time highs would imply oh 2x or 1x from here, doubling a price because it has to go above $120 a barrel. Oil is on the cusp of a major breakout to the upside potentially surpassing new all-time highs, says our next guest, Josh Young, CIO of Bison Interest. Well, that would imply a 100% move from current levels at least. So, what does this mean for uh global war and conflict? What does this imply for geopolitical stability? What does this mean for the Middle East uh Ukraine? Uh and what does this mean for inflation? We'll find out with our next guest. And uh Josh, welcome back. Thanks for coming back. You're also the author of a brand new newsletter. So, congrats on that launch. Uh tell us uh what is the name of the newsletter and high level, what is it about? Sure. Yeah, it's called Bison Insights and we're sharing one or two valuepriced oil and gas uh stock ideas a month. You you also, you know, I was tell joking with you offline. You, you know, your your main day job is still managing Bison Interest. So, I'm impressed that you've recently launched Bison Insights and still have time to do everything at once. But we'll get to some of these insights from Bison Insights uh very shortly. Just start big picture with what you think is happening with oil. It's hovering around $63 a barrel right now as we speak crude and uh it's been trading rangebound for quite some time. It's had a bit of a rough summer and if you take a look at this chart here that I put on the screen we had a huge spike in the middle of the summer June that may have something to do with the Israel Iran situation but that was shortlived. So uh overall how would you characterize the supply and demand dynamics of oil right now and how bullish are you still? Yeah. So, um I'll acknowledge that I thought oil prices would be a lot higher here and I was wrong. And I think it's important when you're considering macro markets to be able to uh identify where you were wrong and when and then to be able to calibrate based on the new information and figure out what might happen next. So, uh oil prices have done worse than I expected partly because there's been more oil uh that hasn't been off the market. So Iran for example that spike earlier this year um was around the Israel Iran war and then the US bombing and ending that rapidly and there was a risk of a supply disruption which would have sent oil prices well over 100 and instead Iranian oil is fully on the market. So, I didn't think that oil would be fully on the market for Maran. And I also didn't think it would all come off. And so, it all being on the market right now along with several other places that historically had some amount of disruption, I think, has been sort of the tilt down. Um, the big thing that's changing right now is that OPEC is bringing essentially almost all of their spare capacity back onto the market and has already expanded its quota significantly. And yet oil prices are here in the mid60s and not at 40 or 50 or 30 or wherever the different banks and macro pundits that were bearish forecast. And so the great part is looking forward as that oil gets digested going into 2026 and 2027 there won't be that spare capacity and there's going to be a tight market. So I think there's a very bullish outlook going forward with all of this oil both from Iran as well as from the OPEC countries either on the market or coming on very soon and the market being able to digest that through significantly higher than expected demand. I want to come back to your oil forecast in just a minute, but I want to show this chart first. This is the gold oil ratio. It's reached levels not seen since the pandemic according to research. And I'll just read a paragraph from this report. Historically, extremes in the ratio have reflected the onset of major macro shifts. When the ratio had last rose above its current level, the 2020 pandemic was unfolding. Now, gold has climbed over 90% in 3 years to around $3,400 USD per ounce, while bread has slid to USD $66 per barrel. It does seem interesting how on an inflation adjusted basis, oil has actually declined versus other commodities. And um again, on an inflation adjusted basis, you're probably paying less of the pump than you did 5 years ago. But I'll let you analyze this chart and whether this has any significance for you. Yeah, it it's actually very significant. One of the ways in which oil demand has surprised to the upside has been on the diesel side and there's been essentially when you look at the different bank reports and different agencies and so on. Um they just have this black hole in their numbers and their their demand is way higher. And if you look at this chart, this tells you where it's going, which is mining activity. First came gold, now is coming copper. And then next up is coming oil. And so really I think OPEC saw this need for oil on the market specifically diesel. And that need is getting met to the extent that gold prices continue to rise which I don't have a strong view on but if gold if this ratio continues this is amazing for oil demand and historically gold has led and then oil follows. And so it's very exciting. This explains again a big open question in the oil market and most analysts don't look at both oil and gold. So it's great that you brought this up. Uh this wasn't prompted by me which is pretty exciting. Um and again when you look back at 2020 and this this ratio like you mentioned blew out there that was an amazing time to buy oil and related equities. And I would argue that right now is also a great time to buy oil and related equities. Well, uh, given that it's a great time, if we were to assume that this ratio inverts back towards the mean, meaning it falls, what does that imply for the, uh, Brent crude price? Um, I mean, this ratio implies a number for Brent crude, uh, that would almost be embarrassing to mention on air. Uh, I mean, this is really signaling all-time high prices for oil to the extent that gold prices don't collapse. So if one is a gold bull and a dollar and currency bear, then one should I would argue also be very much an oil bull. And like I mentioned in the introduction, oil is a energy input for basically all things if oil were to rise and if this is a good time for investors, what does that mean for inflation going forward? Well, right now we've been tremendous beneficiaries of low energy prices in sort of the general economy in the US and the world. And so I think, you know, sometimes we're given economic gifts. Unfortunately, I would argue that our policy makers and our governments have sort of wasted them on um you know, fringe benefits and wasteful spending and so on and have still run up record deficits despite low energy prices. And so looking forward, I would expect higher energy prices and potentially more inflation or maybe just shifts in spending from some of these other categories over towards energy. Now Putin and Trump have met earlier this week followed by a meeting between Zilinski and Trump and EU and NATO um leaders. We'll talk about uh this in the next segment. What are the major geopolitical events right now shaping oil? And do you think that this deescalation potential deescalation of the Ukraine war as signaled by these summits in the past week may be a headwind for oil? Two-part question. Yeah, so um hopefully there's peace. Unfortunately, it doesn't look very likely right now, and we'll see. Um, and if there were to be peace, there's actually not much oil from Russia off the market other than from direct physical disruptions from kinetic attacks by Ukraine, which has kept about half a million barrels a day off the market from Russia. If there were to be peace, my expectation is that there would be substantial financial uh grants and loans given to Ukraine to rebuild and there would also likely be a rebuilding process by Russia. That rebuilding would be extremely oil inensive and could actually use way more oil than the small incremental amount of oil that would come back on from Russia. So, I would actually see that as bullish, not bearish, maybe bearish over a one or two-month period as that immediate oil comes back on, the small amount that's been disrupted, and then extremely bullish as you use 2 or 3 million barrels a day for the next few years to go rebuild these destroyed cities and industrial bases in Ukraine and in Russia. And if there is peace, uh, would you think that maybe Russian sanctions would be lifted and Europe resumes buying Russian natural gas and oil? Yeah. So, I would expect that over time. That's probably a likely requirement for Russia. And again, that's where I hope for peace, but I don't know that it's very likely here. I would expect that dropping sanctions would be necessary. And um so that would be again, there's not much oil off the market. There is a lot of natural gas off the market from Russia, but Russia has ramped its exports east significantly to China. Um they put in a pipe and they're also sending some LG. And so, you know, there is potential supply to Europe, but I'm not sure that that destroys the global LNG market like some are forecasting. I think there's an argument for reasonably strong natural gas prices to Europe and Asia via LG going forward, even if there's a a peace situation. I think Europe really suffered from having sort of myopic bad energy policies and I think they've recognized that it's important to have two suppliers of natural gas, not just one. So, I would expect sort of a let's say at least $8 in MCF price for LNG. Uh, right now it's at around $10 $11 or so in MCF. So, not too too much downside from current price levels and still significant potential demand for natural gas from places like the US. What about uh the Israel, Iran, and Middle East situation? Earlier in the summer, as tensions escalated, we saw a brief spike in the oil price. I'll pull this chart up again. That happened in uh June like I mentioned earlier. uh can you briefly assess uh what's going on in the Middle East and whether or not any more hotspots may emerge? Yeah, so there have been a few sort of kinetic um interactions between direct interactions between Israel and Iran and to the best I can tell they look staged in the sense that um there there was not clearly an effort by either side to win per se. uh you would win in a war against Iran by destroying their energy export infrastructure in order to deprive them of funds to fight back and you would win against Israel through sort of similar attacks and I think Israel or sorry Iran maybe tried harder they hit some of Israeli infrastructure Israel did not hit similar Iranian infrastructure and so when you saw there was a risk that Israel would actually take this most recent conflict seriously which is where that price spiked and then when it became clear that they were not actually serious about defeating Iran ran um and were just engaged in yet another one of these sort of theatrical moments. Um that's where you saw the price that red was almost straight off a cliff line down. And so, you know, we we'll see. I think I think there is a case that over time, especially if we're able to get into a ceasefire event with Russia, uh which again would be wonderful. I hope that happens. Um that the US would enforce more sanctions on Iran and some but not all of the Iranian supply would come offline. And that would be an argument um at current supply demand levels for oil, let's say closer to 75, which is sort of where we saw some of that geopolitical risk priced in around that event. In that sort of situation, 75 versus the current, let's say 64 or so. So we're looking at $10 of geopolitical risk premium every time roughly. Uh sort of I was saying that would just be from Trump sort of doing what he said in terms of enforcing sanctions if there were an actual supply disruption. If Iranian exports were bombed, if there was some other sort of disruption in the straight of Hormuz or so on, uh there there would be upside that would be let's say $30 plus a barrel, not not just the 10 from, you know, just promised sanctions being enforced again. You think that with the Strait of Hormuz being so geopolitically sensitive, the US and other nations would have found alternatives to shipping lanes, but that hasn't happened yet. Well, the Saudis built a multi-million barrel a day pipeline to be able to send oil west, ironically, into the Red Sea where they have a problem with the Houthies. So, you know, there there are some of these redirections, but they're they're imperfect. Um, so yes, there are some sort of partial solutions to this. um not full solutions and and frankly I think it's something like 20 or 30 million barrels a day goes through the street of Hermuz and there's only about five million barrels a day of capacity for oil to go west through Saudi so you know there'd still be a significant problem and as a reminder uh industrial commodities uh real commodities like oil they price on the margin and so if you have a 1% surprise to the downside to supply you can end up with a you know 20% or so price movement in either direction and so you know a surprise of you know 10% % or 15% of supply or more could send a price movement that's much higher than that. You know, it could be a $50 or $100 type price movement um from let's say that sort of 10 or 15% type supply disruption. Ultimately, why do Americans and and the WTI price care about what's happening in the Middle East? Can the US not just turn up shale production to offset any disruptions in the street of Hormuz potentially? So, so this is great. I was just at an energy conference actually chatting with some folks from some of the oil majors and I think they've actually this is a really big topic. They got lost. They used to have this idea of being integrated where they would produce oil and gas, they would ship it themselves, they would process it themselves and then they would sell the end product at gas stations. These days they've like gotten distracted by all kinds of different shiny objects and they don't do that anymore. So Exxon will produce oil in West Texas and then shift ship it to West Africa to refine it. Instead of refining it in their refineries, they're starving the refineries of capital. It's part of why they catch on fire and explode, unfortunately, frequently. And so they're not integrated anymore. They're sort of these hodgepodge of assets. There's a little integration, but not nearly as much as they did they had historically. And so that's put US energy security at risk because we have these refineries that need foreign oil and then we export our oil um from the US. Similar to Canada, we export. It's this weird mess. And again, it sort of makes sense if you try to live in a capital starved world. But there's this big miss in terms of the opportunity for the Exxons and Chevrons of the world to be very efficient and the best at what they do. And instead, they've just sort of accumulated these assets. You even had this weird thing, right? You had Exxon and Chevron fighting for offshore oil assets off Gana which is sort of politically unstable and has all kinds of questions around um their their safety being next to Venezuela and there's a lot of uncertainty around their fiscal regime and you have these guys fighting for that instead of figuring out how to sort of more cost-effectively produce and process the oil that they produce in the US um to process it and then sell it at the US gas stations that they own and control. So, it's a very weird I think they've got lost and I think Rockefeller is spinning in his grave a little bit when he uh when he sees some of this. So, that's that's the problem I think. So, so you're saying energy independence in the US is not fully realized today. It's somewhat a myth. Can we go as far as to say that? Yes. Yes. I would say it's a myth and again I think it has to do with sort of strategic disarray and sort of a movement away from the standard oil model towards these sort of like marketing investment bank sort of movements at these major oil companies that control a big portion of the supply in the US and abroad overall then is this narrative that we could have disruptions supply-wise in the Middle East and abroad does that not present a bullish case for US producers at least in the short term? Yeah, absolutely. I think there is geopolitical risk. I think it's not priced in. And like we were saying, I think even just modestly better energy and trade policy by the US could give us back, you know, 10 or $15 of price even in a situation where you have OPEC bringing back on supply. So I think there's some real nice asymmetry here. And again, I don't think that oil should necessarily be $100 here with the current supply demand dynamic, but I think the path towards marginal sanctions enforcement on Iran and sort of normalization, uh, I think there's a decent shot at sort of a $75 plus oil price through the end of the year. Very good. Well, let's talk about some of the findings or reports highlighted in your recent newsletter. Um I will uh just let you comment on uh the summary and then people can go to the link down below uh and sign up and read more. Awesome. Yeah. No, thank you. Um this is a fun it's sort of like a passion project. It's called Bison Insights and um what I do I've learned a lot about the oil and gas markets to try to lose less money on stocks. And so uh but where I spend most of my time is focusing on sort of these individual companies and special situations. And with so many people bearish on oil and not really understanding natural gas, there's lots of these sort of off the-run special situations that that it's fun to to chat about. So far, we've written about one natural gas producer that is post bankruptcy and it's the joke is that it's sort of like hard to buy but easy to value. And then this next one we wrote about is uh warrants that also actually post bankruptcy um where the company has been uh sort of it looks like not quite misbehaving but shifting value from the warrants over to the equity and there's a court case going on and I don't like to bet on litigation but I really like extremely positive expected values. It's a potential 30x from where we wrote about it uh in a win situation and it seemed like a positive sort of 5 to 10x expected value risking that legal win and then also just having lots of upside to natural gas and oil prices. And then there's one there's one insight that we had um so we decided to publish some of the macro analysis that's that's leading some of this stuff within the newsletter. And the one thing I think people will find really interesting that's different from the consensus on US natural gas is that shale wells, natural gas shale wells based on the EIA data um have been declining in productivity on a per foot basis. And so what that means is the wells are getting longer. So the actual production is growing, but it's one of those things the second derivative is negative. So as you get less productive on a per foot basis, eventually you run out of feet to drill. uh you can only get so long, you can only get so efficient. Then as you run out of those efficiencies, production per well should start to decline. So the per foot productivity is falling. And we're seeing that in um in various different statistics, including in the rising values for acreage and assets for natural gas. So the industry understands this, doesn't want to talk about it, and it's getting reflected in valuations more and more. And so finding the companies that are the biggest beneficiaries of that has been a theme for these first few issues for Bison Insights. You can see from data that actually during the Biden administration uh oil production in the US peaked. And uh this may have surprised some analysts initially uh given that they were less friendly to uh oil um and gas policies than perhaps the previous and current administration. Have you seen any policy changes regarding permitting, zoning, and just gas, oil and gas in general now that Trump is in office and whether or not uh these policy changes can affect production in the next 3 years? Yeah. So, I think I think what you meant was that um in the Biden administration, we saw we saw growth. It did it did peak towards the end, but there was substantial growth in production for those first few years in the Biden administration. And so um it's it's weird because they were very negative from a regulatory perspective towards US producers, but then they also restricted some Russian oil exports and were a little less favorable towards um friends. Ironically, they were nice to our enemies uh internationally, but but not so nice to our oil exporter friends. Um and so now the Trump administration has sort of reversed this a little. Um, but so so the permitting is better, the regulation's lower, the taxes are better, but at the same time, the Trump administration, um, you know, I I' I've had people that are like helping them basically tell me they're frustrated because they're not doing what Trump said in terms of the maximum pressure on Iran and Russia and so on. And so by waving sanctions enforcement, one, it makes the US look weak unnecessarily. It makes many people think that sanctions can't be enforced. And again, they can. they're just choosing not to to the increasing frustration of their employees as well as to their service providers and so on. Um but then that is more than offsetting the benefit of lower taxes and lower regulations and easier permits. So it turns out the bigger thing is letting Iran export you know 3 million barrels a day of oil and condensate and using that money to you know attack Israel and you know attack our soldiers and so on. um that matters more for oil drilling in the US than the permitting challenges that we had under the Biden administration. So hopefully that wasn't too political. It's just sort of trying to figure out, hey, why is the rig count falling under Trump? It turns out that helping Venezuela and helping Iran sell their oil hurts West Texas more than making it a little harder, easier to permit wells and get drilling. Is the Trump administration helping Iran? because I'm reading some reports that show that uh actually they're maybe maybe indirectly but now they're sanctioning people in countries that are dealing with Iran. So the Trump administration on Thursday issued more Iran related sanctions targeting 13 entities based in Hong Kong, China, the UAE, Marshall Islands as well as eight vessels. The US Treasury Department said the measures cover Greek national Antonio's margaritas and his network of companies and vessels that Treasury said was involved in transporting Iranian oil exports in violation of sanctions. I mean, people don't want to be sanctioned. So, I I wonder if these sanctioned measures are going to have any long-term immediate consequences for people dealing with oil uh Iranian uh oil exports and whether or not that's going to change the way people or certain entities buy their oil. Yeah, it's a great question and those are real headlines and that is really happening. The problem is scale and so it's also time, right? So this is happening in August and didn't happen in January when the promise was and the pressure was in January and I think it was tanker trackers as well as several others that have reported on this where if you look at the hundreds of ships that are involved in this sort of dark fleet, it's apparently extremely easy. I think Anas has talked about this several others. They'll like post these maps on Twitter, right, where literally you can see tankers transporting sanctioned oil. So, it's not hard to see. And, you know, they're they're getting these headlines. They've started doing this recently at a very small scale, but for every one tanker that's being sanctioned, there's 10 that aren't. And you're not really seeing punishments, per se, for the people doing it. Yeah. Like individual, a few people have been sanctioned, but you're not seeing seizures of assets. you're not seeing the closing down of financial networks. You're just seeing a few folks getting picked on. And my guess would be, I don't know this for sure, my guess would be that some of this is sort of political and sort of um you know related to to the specifics of those people rather than the activity based on the very small amount of enforcement versus the large amount of this smuggling and sanctions breaking activity. So that would be I I hear you. There are these headlines. They are real. And then the threats on India for importing Russian oil are real. But then China just went and took all of there were reports that they took something like 50 million barrels of sanctioned Russian oil um that that India or maybe it was 10 somewhere in there uh you know tens of millions of barrels of uh sanctioned Russian oil that China just their their refiners bought and um brought into uh into their country uh that was supposed to go to India. So it doesn't really there hasn't been a real impact and my comment was based on the order of magnitude of this where it looks like they've shopped for these headlines rather than actually shopping for the hundreds of tankers that they're not doing anything about. So then overall are you more or less bullish on US companies operating in the US not abroad now than four years ago under Biden? Um I'm more bullish now because the valuations are lower and um you know it depends on the company. There are some companies that have depleted a lot of their inventory and they have real issues. And there are other companies that have wisely invested. In some cases, the market hates that they've done this. They've gone and bought inventory and bought assets at a time where people thought that was stupid. And those companies I like, some of those I like the best because they're discounted because oil and gas is out of favor. They're discounted because oil and gas equities are being sold and out of favor. But they're not the ones that have the problem. they've been investing heavily in their future. So those companies in particular I think are extremely promising here given the general activity of drilling too much essentially and and reducing inventory across industry as well as the suppressed prices um from first the Biden administration trying to suppress prices and hurt the producers and now the Trump administration trying to suppress prices in order in order to help consumers. What do you mean by suppress prices? Well, so the Biden administration um you know came in and and dumped uh oil from the SPR and materially impacted uh prices in the short term and then Trump through waving sanction enforcement on Iran and Russia and Venezuela has suppressed prices. Um and then also uh openly I think asking the OPEC countries to produce and export more oil. So it's very weird. We're the largest producer of oil in the world of oil and NGL's and higher oil prices are good for our economy. It's not great for consumers that aren't related to the industry, but overall as a net exporter, it's a simple GDP calculation. Uh the GDP impact, if you're a net exporter of something, if the price goes up, it's good for your economy. And there's lots of complications around that, but it's sort of that part's simple. And so it's very weird to have different parties, presidents in office, both trying to do the same thing. That's like bad for the US economy. Um, but it sounds good, I guess, politically. Well, remember Scopa's 333 promise around inauguration time, 3 million additional barrels produced per day, 3% GDP, 3% inflation, I believe. Right. So what what what does that what what what does that mean for oil uh long term? I mean I mean this is an administration that has openly said that they want lower oil prices. So how can somebody be bullish in this particular environment? Um and maybe let's evaluate what they've done so far. You know that's great. So first of all I think it's uh should not be surprising that Bessent would be uh pushing a sort of bad idea economic policy if you look at his funds returns. No one ever wants to talk about this but like he did not do well. Just because he worked for someone famous doesn't mean that he had this he didn't have a storied career. He was not a high performing company. I misspoke. By the way, it's not 3% inflation. I meant 3% uh federal deficit as a percentage of GDP. But anyway, I'll let you continue. Sure. Yeah, the 333 plan. That's fine. Um and then they they went back and forth on, oh, we're going to grow oil or we're going to grow BOEs, which is really they going to grow gas. They need to grow that gas. So, that would be possible if they tried. Um but look, I think I think it's just it's really unfortunate. You have essentially a gerontocracy in the US and some other countries. You have old people who don't change their minds much treating the US economy and the global economy as if it were the same as it was 30 or 40 years ago. 40 years ago, higher oil prices were terrible for the US economy. The US was a massive oil importer. Now, the US is a net oil exporter. Higher oil prices are good for the US economy. And again, it's just as simple as that. And so you have people that are sort of afraid to tell Trump who's sort of notorious for not receiving feedback. Well, um afraid to tell him essentially that higher oil prices are actually good and you should like sort of start to change his narrative. Um but you're also seeing the industry respond through a much lower drilling rig count on the oil side and a much lower frack spread count. And so, you know, these things take a little time. There's about a six-month lag from dropping rigs to affecting production. So, you know, I think we'll see by the end of this year likely lower oil and natural gas liquid production, which would be a violation of their promise. So, we'll see what they do in order to um try to juice US production. But I think it's a sort of contradictory and likely to fail energy policy. And then in terms of how I can be bullish, um price controls, price suppression always backfire. It's just a question of time. So, will oil prices be higher end of this year, end of next year? I don't know. But they will be eventually much higher because you can't you can't print the molecules and they are printing a lot of a lot of money. So when you print a lot of money and you're not printing more molecules and you're getting less drilling not more in the end that's going to lead to much higher prices. Another indirect way that Trump is suppressing oil, and I say indirect because he's not, you know, perhaps he's not doing this intentionally with a purpose of suppressing oil, but tariff announcements, big ones, have all had a big impact on oil immediately after announcement. April 1st was liberation day, and you saw what happened to oil immediately shot down, I believe 9%. Yeah. Oh, no, eight more than that. 18 n 20% uh overnight over the course of the week. Um to a lesser extent the uh new tariffs implemented August 1st uh saw oil fall immediately thereafter as well although to a lesser extent because they were smaller tariffs. So let's evaluate that headwind that risk and whether or not tariffs are off the table for now or we can see more dips if Trump and co decides to um double down. Yeah. So um I think the big thing that happened with liberation day with that tariff announcement was that as that was happening OPEC was actually increasing their quotas and telling the market that they were going to bring back essentially 2 million barrels a day over the course of this year. So it was sort of they actually did this in 2020 where as the world was shutting down um they got into a price war. So this wasn't a price war this was different. Their view was that there was going to be more demand for oil not less. And actually so far they've been right on their demand numbers. So um they faded Trump's tariffs and frankly the right trade was to fade Trump's tariffs. If you look at where the stock market is broadly, if you look at where consumption is across a number of different characteristics or a number of different aspects of the economy um you know Trump has had sort of a very um you know on again offagain sort of approach towards these tariffs which makes it difficult to assess. What we do know is that the US deficit is running at record levels. We do know that or or nearrecord levels for peace time and so on. Um we're seeing nearrecord deficits across the developed world and then we're actually seeing some significant stimulus in China and elsewhere. So you know how much will there be a real impact of tariffs I think is still a very open question and I think it could be articulately argued in both directions. And frankly, I love your show and I've listened to a number of people make arguments on both directions uh who who can are better situated than me for that. I'll just point out OPEC was raising production. That's why oil went down so much and we're printing so much money that it could offset at least short-term some of the real impact of of these tariffs. I wonder what the uh structural reason for this bare market and oil uh could be attributed to. If you just zoom out like I've done here and you look that you look at this chart, you can probably you can see that oil has somewhat been in a structural bare market ever since its peak in 2022 where it was double the price that it is now. What happened in the last 2 years, 3 years. So um in from the March to June time frame of 2022, it looked like there were going to be serious sanctions and sanctions enforcement enforcement, sorry, on Russia. And it looked like there were going to be millions of barrels a day from Russia that were going to come offline. And instead of that happening, there were price caps that were announced and uh essentially there was a whole regime designed to uh allow Russian oil to continue to be exported and continue to be bought. It was a very sort of weird cynical policy where the US and Europe were sending money and weapons to Ukraine to fight Russia, but then also for a lot of the time Europe was actually buying Russian natural gas. And Europe and and the US were sort of allowing and Canada were allowing and sort of greenlighting and creating a whole legal environment for Russia to be able to export their oil. And there were multiple there was a big French company, there was a big US company providing oil field services to Russia for most of this time frame. So instead of there being millions of barrels a day coming offline from Russia, we saw almost none of that. And so the political leaders in the US and sort of the broader sort of G7 decided that they'd rather have, you know, hundreds of thousands of young men and women in in Russia and Ukraine die then and and sort of continue and perpetuate this war than have higher oil prices. So it's pretty extreme uh in terms of that sort of uh sort of cynical economic policy decision. But that's what you're seeing there is Russian oil, if you look at a chart of it, it was disrupted very temporarily in April of 2022 and then it came almost all back on. So, um, they say that there's never been, what is it? There's never been a a shortage without a glut afterwards of any commodity. And so, you know, I think we're seeing that a little bit. And I think it's a nice setup because there's been underinvestment due to this longer oil bare market for the last decade or so. And I think we're going to see the impact of that. But there's been so many of these um sort of divergent and odd and cynical economic policies in the short term that I think have suppressed the price. And that's where, you know, I think I'm not saying I think Russian oil is going to come off the market. I think it'll probably stay on um as we've seen. Um even with that, I think we ultimately will get to a higher price than we saw in 2022 um as a result of this underinvestment. And like you showed, I think that gold chart is key. It it shows you the impact of inflation and just such an important demand driver that again, I'm just not seeing it. I keep talking about it publicly. Hopefully eventually I'll see it in these supply demand models, but there's hundreds of thousands of barrels a day of incremental diesel demand for these mines. And people are expanding more mines. They're building new mines. It's great. It's great for the commodities. It's great for the world to be able to have adequate industrial and precious metal supplies. Um, finally we're seeing new mine activity and mine expansions and that is translating to oil demand and it's going to translate to a lot more. And this could be both from the money printing and from the physical demand. This could be one of the drivers in addition to sort of general economic growth in the world and whatever. Um, this could be one of the sort of incremental drivers of much higher oil prices in the next few years. When COVID hit, we saw oil plunge to zero and at some point the futures went to negative um for a variety of reasons as global trade and commerce basically halted to a standstill. Now I I I I'm not saying that people expected that to happen uh following liberation day, but there was speculation that tariffs would slow down global trading activity, thereby reducing the oil price. Um, and that did happen momentarily like we just talked about, but it wasn't a sustained crush on oil like we saw in early 2020. Were you surprised by this? Yeah, I mean honestly, Liberation Day was shocking. Sort of similar to uh COVID lockdowns. I think we're seeing just these like rolling uh economic policy failures by governments in the West. And you know, there's longer conversation about what's happening and why and so on. But that's part of what has me so bullish is they're making these giant economic and policy mistakes and then covering it up by printing just unprecedented amount of uh money. And so again, when you look at that gold chart, it just tells you so much. It tells you that we're really messing up. It's not that everyone has decided that they want more gold jewelry, right? This is not some big trend towards, you know, a whole bunch more gold jewelry. that people are reflecting on this money printing and economic policy failures. So yeah, liberation day was shocking. It was bizarre and then within a month Trump had capitulated and you we were off to the races again with the stock market and you still see Trump tweet every now and then on the stock market bragging about it involved with cryptocurrency pump and dumps and other sorts of griffs and schemes and that sort of environment. Again, it's very concerning if one is on a fixed income because there's going to be a lot of inflation on the backside of this sort of nonsense. Um, but it's very promising, I think, as a commodity producer, especially with a chart like this for oil where we have so little and you look at the rig count and you look at international exploration where you'll see these individual discoveries get announced, but there's so few of them versus so many um that like we used to see historically. And so um and I see you're looking back in time if you look I mean we have this time frame from essentially November of 2014 where OPEC decided that shale was growing too fast and they really wanted to punish shale producers and crush the price where there's been almost no incremental exploration and delineation for oil um globally for the last decade uh plus and so I think that's a really nice setup and you know I don't know exactly and again I I I'm think generally optimistic and I think In this sort of setup, it makes sense to be biased bullish in the short to medium term. But I think there's really only one way this resolves from a price perspective. And I think it's just a matter of time before we get into an environment where we hit multiple all-time highs and that induces sufficient investment to get us back into a potential future true overupp situation. And so absent that, you know, I think it makes sense to be really bullish oil. And then especially again in a mining environment like we're seeing with a precious metals price environment and copper prices and so on. I mean you're going to see a lot more of this development. You've seen tons of equity raises for mines uh and mining companies and you know I think I think things look really really good from that perspective. New all-time highs would imply 2x or 1x from here doubling of prices because it has to go above $120 a barrel. Okay. So given this thesis how are you playing oil? Are you using futures? Are you buying companies? And if so, are you buying the smaller ones, junior explorers? Are you buying the bigger producers? What's your play here? Yeah. So, so I'm buying uh producers and services companies. Um, actually, I think my favorite right now are the drilling rig companies. There's drilling rig companies onshore. So, the value guys and the generalists are all buying the offshore ones, but those are complicated and there's their own, it has its own sort of set of risk factors. and the next maco could put the uh one of these, you know, the the big BP oil spill in the Gulf. Um the next one could put one of those drilling rig companies fully out of business. So, I prefer onshore to offshore. And these companies trade for pennies on the dollar relative to the replacement cost of their rigs. And the history is in every cycle you go from trading at a large discount to replacement cost to a large premium uh to replacement cost in order to induce investment to build new rigs and invest in new technologies. So I love them. And then I really like some of the small producers like I was saying that have sustained their inventory and made acquisitions and gotten punished in the market in the short term that trade at two times cash flow, three times cash flow somewhere in there. really low valuations on really excellent assets and the market doesn't like it. Partly because of passive, partly because people don't like the sector and the stock charts in many cases look terrible and people trade these on technicals when the reality is there's tremendous intrinsic value and a lot of upside. And we've seen this in times like that 2022 2021 time frame where you saw prices rise and these stocks way outperform. And I think there's many different arguments for getting into another environment like that. And if we don't, they're already priced for a lot of downside from a commodity price perspective. So it's sort of uh those famous investor Monish Par likes to say uh you know he likes heads I win, tales I don't lose too much. And so I feel like it's really set up like that here. Excellent. Thank you very much Josh. We'll leave it here. Where can we learn uh about your work and go to read about uh your uh research? Yeah, I'd encourage people to check out Bison Insights. Uh just Google Bison Insights. Bison Insights.info. Uh real excited about this project and it's a good way to see some of the the types of companies that I'm investing in. Awesome. We'll put the links down below. Check out Bison Interest there or insights rather. Bison Insights. Bit of a tongue twister. All right. We'll see you next time. Josh, thanks for coming on. Thanks for having me. Thank you for watching. Don't forget to like and subscribe.