What's Next For Oil and How To Prepare | Josh Young and Jimmy Connor
Summary
Oil Outlook: The guest expects persistently higher oil is plausible given severe supply disruptions, with scenarios discussed up to $150–$250 WTI amid Middle East instability.
Supply Shock: A sustained oil supply shock from the Strait of Hormuz disruption, Iranian instability, and infrastructure damage could keep inventories tight even if flows start to recover.
Valuation Dislocation: He highlights a major dislocation where energy stocks have lagged the oil price surge, creating compelling relative value.
Small-Cap Opportunity: Emphasis on small-cap energy producers and oilfield services with transformed free cash flow, deleveraging potential, and refinancing tailwinds at current oil prices.
Large Caps Mentioned: Exxon (XOM) and Chevron (CVX) are up more than peers, but he finds better value down-cap in producers and services.
Macro Risks: Potential SPR releases, policy shifts, or de-escalation could pressure prices short term; escalation and infrastructure attacks could accelerate upside.
Economic Effects: Higher fuel costs pressure consumers and sectors like airlines, with inflation risks rising if elevated oil persists.
Overall Stance: While avoiding direct advice, he argues sentiment and models underestimate tightness, supporting a constructive view on select oil & gas equities.
Transcript
Josh, thank you very much for joining us today. How are things in Houston? >> They're great. How How are things in Toronto? >> Not too bad. Yeah, we got spring right around the corner. It's starting to warm up here, which is good to see. So, we have a lot to discuss. The last time you and I spoke, which was early December, oil was trading at $60 a barrel, if you can believe that, and we saw oil rip through 100 bucks this past weekend, and now it looks like it's hitting down toward $90 a barrel just on the back of these headlines that the G7 are going to meet and possibly discuss releasing uh petroleum reserves. So, with everything that's going on right now, I want to hear your assessment of what's happening with the price of oil and where you think it's going. And if you think it's gone too far too fast given the situation, >> yeah, I mean I think it's the question of the day and the the right answer and the honest answer is that no one really knows and so in the context of that uh oil prices have certainly moved a lot but also I don't think almost anyone anticipated that the straight of hormuz would be blocked which essentially knocks out somewhere between 10 and 20 million barrels a day of supply in addition into substantial natural gas supplies and chemicals and various other other things. So, um this is clearly unsustainable and so the question is how long will it last and the longer it lasts and the more oil is offline for that longer period of time, the higher oil prices should go as well as the higher refined products and chemicals and fertilizers and food and various other things should go. And Qatar's energy minister has come out and said that if the straightup form moves continues to be shut down, oil could go to $150 a barrel. He didn't really discuss a timeline, but do you see that happening if it was shut down for another week, for example? Yeah, honestly I have trouble seeing a clear path to the straighter form moves being fully reopened anytime soon. Just given that the trajectory of the conflict, given that the uh Ayatollah of Iran was killed, given that a bunch of the Iranian sed senior leadership was killed and then um that the Ayatollah's son was put in and Trump has expressed displeasure about that. So the longer again the longer it lasts the higher the price goes. 150 sounds like a lot but it's actually not that high in the context of this sort of extreme black swan event essentially for oil. And I have a hat behind me that says 250 WTI which was my thought that at the end of this cycle at the peak that maybe we would be able to get to all-time high inflationadjusted oil prices. And you know, geopolitics has always played a role in setting oil prices one direction or the other. So, you know, I guess we shouldn't look up uh look down on it too much in terms of a potential catalyst for price changes. That being said, it does it is a very large oil price movement that we've already experienced, especially last night when it got closer to $120 a barrel. And so that sort of rapid movement does impact demand and it does have sort of economic ripple effects that could cascade if they weren't met with policy responses. >> And I like the fact that you brought up oil, the oil price on a price or inflationadjusted basis because we still pay relatively cheap oil. And uh when you look at the 1970s, for example, the Alan Kapoor war happened in October of 1973. We saw the price of oil go from $3 a barrel to $12 a barrel on the back of the um Arab oil embargo. And that happened in a relatively few short months. And then on the back of that, inflation ripped too. And then late in the 1970s, I believe it was 1979 when we had the Iranian revolution, the price of oil went from 14 to $38 a barrel. So, do you see a situation like that happening where we might see the price of oil not only double but triple in a relatively short period of time? Because you got two big issues going on right now. You have the straight up formoose shutdown. But then you also have Iraq which is the second largest producer of oil in OPEC producing 5 million barrels a day. They're I think I read 70% of the production has been offline now. >> Yeah. Well, there's not just that. There's also 5.5 million barrels a day of crude oil, condensate, and NGL's that are getting produced in Iran. Much of it's being exported still. So, people don't talk about this. It reminds me of the Russia Ukraine war where you have whole newspapers and whole news segments full of Russia bad uh and then zero coverage of you know in some cases the financial affiliates of these news companies these media companies buying the Russian oil for distribution or invested in the companies that were actively buying Russian oil to essentially net effectively support the Russian war effort. Similarly, while Iran is restricting exports of oil from other countries in that straight of Hormuz area uh and in the Persian Gulf, their exports are continuing um to some extent uninterrupted. They're they're exporting outside of the straight. They're exporting their they've allowed appear some cargos uh to go through to get to China. And so there's a this is not a sort of even war or even economic disruption. And um the reporting on it is very bizarre. And um again, it's one of those very strange things. If we're going to go kill a whole bunch of people in Iran in order to affect regime change and to free the tens of millions of people in Iran who are oppressed, at the very least, you'd think we could seize their oil tankers, sell that oil into the market to mitigate some of the supply shock that Iran has already caused and also to cut off the funding for these Ayatollas that are killing their people and right now shooting at American soldiers. It's a very very weird modern war. or contemporary war is is very weird and there's a lot we were talking off camera of profiteering and other sorts of strange activity by various folks who are involved that that again it's not reported on and it makes absolutely no sort of economic or strategic sense if there aren't people on an individual basis who are getting compensation outside of the alignment of the organizations and countries that they're supposed to represent. And so going back to what I was saying about the 1970s where we saw the price of oil go up three or four times. Uh do you see that happening now under this scenario? So let's just say that the base price was $60 a barrel. It's pretty well doubled that you know for a short period of time it was trading up or close to $120 a barrel. Could it go to 180? >> Yeah, I mean it could go to 250. So I think the way to think about it is that in the 1970s you saw oil prices rise like you said from very low levels to uh using your numbers $12 a barrel. What happened after that is you saw some demand destruction. you saw some pullback in uh price and so similar to what we saw you know oil prices went from negative in 2020 to what was it 125 130 or so uh again just using uh nominal dollars uh after Russia's invasion of Ukraine in March and then June of 2022 and then you saw prices retrace down more than 50%. Similarly, in the 1970s, you saw price surge over a few year period from the late60s to 1973. You saw the price reset higher, but then you saw it fall, what was it, 50%, 60%, something like that, and stay there for years with a very powerful narrative to sell, to get out, energy stocks are uninvestable, these companies are terrible, etc. Which may sound familiar. And then you saw this second wave of geopolitical issues. And you saw inventory degradation, well productivity declines. You saw a weird narrative similar to what we saw this year, earlier this year and last year about there being supply surpluses and various other things which which were ephemeral. They were um there were there was a small part of truth and a large part of propaganda and sort of nonsense and bad modeling and bad math. And very similar to that 1979 setup, you had had this enormous pullback in price from the 1973 highs. Here you have that big pullback in price from the 2022 highs. Similar sort of weird propaganda consensus, like very strong consensus for numbers that were measurably incorrect. You could see the inventory changes globally before this Iran war started. from January 1st to the end of February, like right before it started, you could see that inventories globally were falling rather than the IEA, EIA, Goldman, Morgan Stanley, the whole sort of all the expert consultant nonsense that they charge you so much money for. Those guys all had 3 to four million barrel a day in some cases over four million barrel a day surplus estimates for Q1. And it we saw a draw. it was down about 500,000 barrels a day uh on crude oil and then you know different products different amounts but still down millions of barrels a day versus the consensus so very very similar I think it's very astute to pick up on this this 1970s analogy and and again I think it's one of those problems that are multiaceted so um you know is there a risk as we chat about this on you know Monday middle of the day is there a risk that later today Trump changes his mind on Iran or does some big change. Is there a risk that the G7 go and release oil from strategic petroleum reserves? Is there a risk that there's reduced flow constraints? Absolutely. These are all sort of risks that would be downside short-term risks to the price. The flip side is that there's already been damage to refineries, damage to fields, field shut in, gas facilities shut in, and people I think somehow missed it. But Ukraine destroyed a crude oil tanker and a LNG tanker that Russia was using to export in the Mediterranean in the middle of all this. I think it was last weekend sort of while the US was bombing um bomb started to bomb Iran. And so you have enormous potential constraints to the oil and natural gas supply that are not fully captured in just the pure straight of Hormuz discussion. And there's still sort of further potential downsides to supply. But when you think about sort of what the path would be if there was a full they call it taco Trump chickens out. So if if there was a full Trump sort of deviation suddenly the ayatollas are no longer the bad guys. We win whatever. Even in that scenario, you have potentially months of supply offline and you have other embedded problems and you still have the risk of a potential Iranian revolution given the enormous uh protests and again you know I wish only the best on the people of Iran. They deserve freedom and not to be killed by their government. Um but they um you know there's a decent chance that there's going to end up being some sort of revolution. They're probably not entirely peaceful. And in that circumstance, we saw Iranian exports, which was the big thing, not really the OPEC stuff, which gets over reported and didn't really actually impact supply much, but Iranian production went from its all-time high in the late 1970s to down roughly 80% at its lows in the early 1980s on the back of the Iranian revolution. And so Iran again is producing or it was very recently producing 5.5 million barrels a day of petroleum liquids, oil, gas, condensate uh and natural gas liquids, sorry, in condensate as measured by Bloomberg. You know, different estimates on this, but very likely over 5 million barrels a day. If they have a similar production degradation as they had the last time there was a revolution in Iran, that on its own would be a catastrophic oil shock. And that on its own, excluding all the other impacts, ignoring that it'll take months to bring production back on from these different countries, all this other stuff, you're still in that sort of $250 WTI type environment. >> So, with the move in oil that hits everybody, me, you, and everybody else in the US and Canada, and every $10 move in the price of oil means corresponding 25 or 25cent increase at the pumps. What are you paying in Houston for a gallon of gas? Well, on uh Sunday I paid 265 a gallon, which actually felt like a lot? >> 260. And that's up how much ballpark? >> Yeah, up about 60 cents, 65 cents, something like that over the last couple months. >> So, probably a month ago, I was paying a buck 20 a liter Canadian. Uh now, it's a $150 this past weekend. A$150 a liter. Uh, if you do the FX on that and convert it over to gallons, that's about 420 a gallon. What do you think of that? >> Well, that sounds like it's about $3 a gallon of taxes and regulatory impact and so on. So, that's really uh I think that's reflective. Again, it's one of those things they like hide this government impact. Unfortunately, Canada's gone sort of pretty far to the left and pretty heavy on the regulatory and tax side of things. And uh you know they can't just tell you hey you're paying a dollar for the oil portion and $3 for you know our extortion of you to gound you know various programs that you don't believe in and didn't even want. Um so you know or or maybe now sorry it would be a $150 for the oil portion and you know the rest. So it's a very very strange uh very strange system in terms of uh in many countries experience that. So two things on that. So, one, cars are way more fuel efficient. So, excluding electric vehicles, when you look at hybrids and you look at regular uh gas powered vehicles, they're way more efficient than they were in the 1970s. So, there's way less impact. Like, you might not like that you're paying $4 US equivalent per gallon for gas, but it probably doesn't change your life. And in the 1970s, it changed people's lives. It was a huge portion of household expenditure. And frankly, there were gas lines, so you had to get in line just to even get gas, which of course is weird because then you're burning your gas as you're waiting in line to go um to go fill up your tank. So, um that efficiency matters a lot. And then also the high price in many jurisdictions like in Europe and in Canada, some of the sort of more socialistic, higher price, higher tax jurisdictions, um have meant that the cars are even more fuel efficient there, but also people are desensitized to the price. So, two things. One, when your government in your socialized country blames the US or Iran or anyone else for the high price at the pump, they're lying to you. It's them. It's not anything else. And it's very easy. You know, Biden would point to the Putin price hike. It was nonsense. It was the Biden price hike, not the Putin price hike. And it's the Carney price hike or the Trudeau price hike, not the Trump or Ayatollah or whatever price hike. But the other thing is that the the marginal propensity to consume, you don't actually you don't destroy much demand when you go from $4 a gallon equivalent to 450 because the oil price is up 50%. Like it just doesn't even it's a it's a marginal change in the price and people's elasticity of demand on on oil is very low. People will if you're filling up your tank of gas, you're not there for fun. You're there to fill up your tank to do whatever you want to do with your car and it's a relatively small percentage of the cost of car ownership. It's tiny compared to your cost of actually having bought or leased your car. And you know, just for the most part, people's consumption is almost nonvariable to price other than giant price shocks and other than extreme price movements way beyond what we've seen so far. >> Yeah, very good points. I mean, I think I would have to see the price of gas probably increase by 50% to have a meaningful impact, but uh you touched on Trudeau and Carney. Actually, Carney, so Trudeau implemented this thing called the carbon tax. And when Carney came in, of course, he's trying to gain popularity. So, he got rid of that and that resulted in a decrease of 17 cents per liter, which was a big positive. >> Uh oh, >> that's great. >> Yeah, I should say the other thing, too, is uh we're still paying a lot cheaper than the state of California. They're over five bucks a gallon. >> So, so mentioning California just real quick, there's actually there's this brilliant like cunning, cynical thing going on. So, California is very anti-oil broadly and Governor uh Gavin Newsome is, you know, very very hypocritical, but also very like publicly anti- oil, pro- environment or whatever he calls it. um they're doing something that's that's wild and it's actually sort again brilliant but sort of evil like um so they've started to award drilling permits. They started doing this last year. They they had held back drilling permits for a long time. You basically if you wanted to drill an oil well in California for the last four years or so you were mostly out of luck. Companies were sort of rationing their own remaining permits to be able to continue to drill just a little bit. There were all kinds of problems with the oil fields. California is a major legacy oil producer. Um, it used to produce, I think it was over a million barrels a day at one point. That's fallen a lot. It's almost California oil production's fallen almost as much as Venezuela on a percentage basis, which says a lot if you think about it. So, what I think they did is I think they realized Nuome's uh, you know, political consultants, they realized that Trump was saying drill baby drill, but the rig count in the US was falling. And so I think what they realized was, hey, we've already killed our drilling rig, you know, activity. We were at 50 rigs way back when. Now we're running there's fewer than five rigs running consistently on shore. What we can do is we can give these companies more requirements, but we can start awarding drilling permits and we can show that the state rig count is rising while the federal rig count is falling. and we'll make Nuome look like the drill baby drill candidate. Even though he's, you know, pro- environment, has all kinds of weird wacky rules that all kinds of requirements on this. It was deeply imperfect, very California. Um, but the rig count in California has more than I think it's more than doubled. It's certainly up at least 50%, but I think it's more than doubled. Um and at the same time in the last year and at the same time the the rig count in the US for oil rigs is down uh by about I think 25% or so. So why is it down? Um, so mostly it's down because the price has been too low and the price has been held too low partially through this sort of fake super glut narrative and partially through the Trump administration waving sanctions enforcement on Iran, which again is sort of wild when you think about what we're doing. We're actively killing them and blowing up their stuff. But like you know a month and a half ago we were just looking the other way as their sanctioned oil was on its way to India, China, various other countries. Um and then we also so we actively waved sanctions enforcement. Trump very very blatantly lied and said that he would put maximum pressure on Iran and then you could just see in the numbers there was not maximum pressure. There were sanctions that were stated and not enforced that could have been enforced and were not. Um, and then various other activities like going to Venezuela and telling everyone, hey, we're going to go grow all this production. Um, and 10 other things I can't think of offhand that essentially projected the policy sort of stance of higher oil production, but not through more economic development onshore US. And so that sort of like destroy the US producers but increased supply through any means necessary outside the US including pushing a pipeline in Canada. So I guess good for Canadian producers potentially if it actually manifested. Um that suppressed investment desire and also it kept the industry more disciplined. We're at $50 uh $55 where we were two months ago. It didn't make economic sense to drill remaining inventory. So the producers where they historically might have been a little more optimistic and tried to grow even if the economics didn't currently dictate it um the the mood was created essentially and the perception was created of persistent lower prices which suppressed activity. And again this is completely opposite to the Trump administration's economic policy on virtually everything else. And so it's just this very weird sort of like almost visceral hatred combined with misrepresentations. And when you know people hate you and they're going to lie to you and lie about you, you aren't likely to want to go outspend your cash flow and make your shareholders unhappy and make your lenders unhappy. You're much more likely to go do the opposite and be much more constrained. And so that that's my interpretation of what was happening. >> So you raised an interesting point then I I want clarification on this. You said a month ago the US was allowing Iran to to sell oil. Um or what did you say the US uh uh waved sanctions? >> Sanctions enforcement, >> right? Okay. So, they were allowed to sell oil. So, here we are a month later and now they're bombing the hell out of the Iran. Like, what happened in the last month? >> Well, we're also not still, as far as I can tell, fully enforcing sanctions on Iran. Again, we're literally I was ranting about that earlier. We're literally still there. you you have uh you know Saudi oil and Iraqi oil getting destroyed on tankers going through the straight and um you're still seeing Iranian oil and condensate and bunker fuel going out uh on tankers. Uh I think one or two might have gone through the straight but then a bunch of it's going through I forget the name of the the port but they have an export facility uh east of the straight of Hormuz that they've been that they've been active using and they're going ahead and exporting that oil and selling it and the US is actually still not enforcing sanctions and there there are mechanisms for enforcing it. So one of the big problems so there's a direct problem which is that money is being used to buy weapons and pay people to kill Americans and our allies. So that is a direct problem right now. But there's a a sort of larger sort of background problem which is when you impose sanctions and you have mechanisms of enforcement which we've shown because we were able to reduce consumption of Russian barrels through various other means through threats of tariffs through other you know directly sanctioning the buyers. So I guess they call it secondary sanctions. There's various other mechanisms of enforcement of sanctions beyond sort of just the direct sanctions. And so when you announce something and you don't enforce it, it's uh it's uh you know they have this saying peace through strength, it's war through weakness. It's sort of you you diminish power with no benefit to yourself. You're just uh or the opposite of like the Teddy Roosevelt speak quietly and carry a big stick. It's like yelling, but you know there's no there's no there there in terms of the the uh enforcement. So um what you'll see is that as a result of that is you have many folks economists and oil pundits and various other folks that say a sanctions are not enforceable and which is complete nonsense again because you can observe when they are enforced what happens to production what happens to exports you can see even in the Trump administration in their first term uh in 2018 they started to enforce sanctions on Iran and by 2019 I've like plastered this all over social media I put it on my newsletter a few times like you can see it very clearly that Iranian oil exports completely collapsed when those sanctions were actually enforced. And so again, it just is sort of this like weird, hard to explain, uneconomic violation of all the other Trump administration policies of free market and pro um you know, pro manufacturing in the US and pro- domestic industry. They just have this sort of weird visceral hatred for oil prices and for US oil companies. And so that's manifested through this policy deviation. And it's to such a degree that we're still not enforcing sanctions on Iranian oil while bombing Iran and fighting the people that are being paid and armed with the money from this Iranian oil that we're choosing not to seize, not to block, not to etc. And it's really shocking if that is the case because the price of oil, the price of gas at the pumps has such a big impact on everybody's lives. Not only consumers but truckers, airlines, so many other aspects of the industry or of the economy. >> Yeah. And I think the the problem is so people say, "Oh, hey Josh, you're just you're invested in oil companies. You want a high oil price. You got your 250 hat. I also got my 100 hat. And my thought is make oil $100 again." And I know it's like silly to talk about hats, but I think it's helpful in terms of sort of thinking about different price regimes. And if you fight the $100 oil, which is very moderate on an inflationadjusted basis for thinking about oil over the last 30 years, 50 years, whatever, especially compared to similar products and how high those prices are, uh how high rent is, how high real estate, like other real assets that are very similar, much much higher price appreciation. So, if you fight a $100 oil through price suppression, through bad rules, you end up with the $250 oil. If you don't sanction Iran and you don't enforce or you sanction them and you don't enforce the sanctions, you end up bombing Iran and you end up with the 200. It's just sort of this like weird uh you know, when you defer your problems and you try to pretend like they don't exist, you just create much much bigger problems. So I think rational economic policy applied to energy in the US would have put us on a track to sustainable development, let's say around $100 a barrel, maybe a little higher, a little lower based on different economic activity and various other factors, new fields, all kinds of just sort of the normal world from an oil economics perspective. and instead they sort of chose both the Biden administration and the Trump administration now have chosen this sort of much more highly volatile environment which it looks like despite the price moving down $25 or so from the high last night um it looks reasonably likely to me to lead to much higher prices potentially in the near term. >> And remind me again most of the oil coming out of Iran is going to China. Is that true? >> Um it looks like it. Historically, it's sort of it's gone to India, China, various countries via intermediaries. So, you have countries like Malaysia that sort of their their oil fields are in permanent or they're they're not permanent decline, but they're in significant decline and magically Malaysian oil exports surged in the last few years and various other places like that. So, um it gets sort of laundered and then and then mostly sent to China and India and I think most recently it was mostly just going to China. So what does this mean for China? Because they they are the second largest consumer of oil in the world. They consume 15 to 16 million barrels a day. So Venezuela that oil is no longer going there. I'm assuming the oil coming out of Iran, there's no oil leaving in Iran now or very little. What happens to China and does it have an impact on their economy? I mean, it should eventually have an impact on their economy. And one of the theories I've seen is that Iran is just the latest in a series of Trump administration actions to try to reduce energy supplies to China and stress their economy and energy security in order to achieve various goals from either a trade or diplomatic or whatever perspective. Um, honestly, I'm not 100% sure. And given the amount of speculation I've shared on things where I think I know more about it, I I don't really know about what it will do to China. I know they have a large SPR which may or may not be full. Uh may or may not have all the oil that they say, but they do seem okay for right now. and they're still getting shipments of oil uh both from Iran it looks like as well as from various other countries like the the Greek uh ships that are slipping through the straight of Hormuz at the urging of President Trump um are are delivering that oil to China it looks like for the most part >> and Josh just remind me again on a per capita basis the US is the largest what are the numbers on a per capita basis and how does that compare to China. >> Yeah. Um, I don't I I I look at this stuff, but I I hate giving numbers where I don't remember them exactly and so and I don't have it immediately in front of me, but it's something like um what is it 18 barrels per year consumed by an American and then of oil and then it's something like four or six barrels per year consumed by uh per capita by uh Chinese people and then um it's like half of that consumed by uh Indian people and so it's really the consumption is mostly it highly correlates with um per capita GDP and the US is at a little higher than it would otherwise map on per capita GDP but when you look at Chinese oil consumption for example if China on its current sort of decarbonization or whatever they call it because it's not really that cuz they burn a lot of coal too but whatever sort of like the fake ESG trajectory that they're on of you know limiting their hydrocarbon consumption uh particularly oil um even on that trajectory they should still double or more their oil consumption as their per capita GDP and as their sort of broader wealth spreads despite their socialist system they still have some degree of wealth creation over time for their middle class or equivalent And so as that happens, you still end up even despite their best efforts with higher um with higher per capita consumption of oil. You we saw this in Scandinavia where everyone was shocked that some of these Scandinavian countries shifted from uh gasoline powered and diesel-powered vehicles to electric vehicles and their per capita oil consumption did not decline by much. And everyone was shocked. But when you just think about it, you look around your room, right? You look at the clothes you're wearing, the chair you're sitting in, the walls of your room, your office, your home, whatever. Um the lights and what's powering them, the your modes of transportation. You just think about all of it. Um a good portion of your life has oil and oil products as direct inputs. And the wealthier you are, the more you're using. And again, it's not like wealth like, you know, in a giant mansion with whatever. It's just, you know, going from extreme poverty from, you know, huts with no no floor, you know, a dirt floor and um, you know, thatched roof to uh, western style of living. There's just a dramatic increase in uh, per capita oil consumption. >> And the other issue th those countries are relatively small population wise, like Norway's 5 million people like that. What's that the state of uh, Rhode Island? Yeah, I think I think it's less about the outright oil consumption and more about understanding what happens with a wealthy population in a country that's seeking to diminish oil consumption. And the reality is that the wealth seems to outpace the oil consumption reduction if that makes sense. And then similarly, you look at places like California where they try via taxes and intentionally high fuel prices and various other things. Um, and they're just not able to like the average Californian consumes way more oil than almost anywhere else in the world, including many US states. So, it's just, you know, the wealth overcomes things. And then, you know, I'm from there. You have the people with like they have one Tesla and then like a a giant SUV like a Ford Excursion or a you know a a G Wagon or whatever. And so yeah, they have their electric vehicle that they'll drive around town for their friends to see and then they'll have their actual car or truck or whatever that they like to drive around in. Um and so uh when you observe people's revealed preferences through chosen consumption rather than through re regulatory uh frameworks you you see just you see more directly the effect that I'm talking about in terms of higher oil consumption correlated to wealth. >> All right. So let's bring it back to investors. Everything I do is is for investing purposes and I'm always trying to think okay how can I make money on this or how can I protect myself from losing money. What are you suggesting to investors? How do they position themselves for the moves and the volatility that we've seen here just in the last couple of weeks? >> So, I try to not give anyone investment advice. I run a small investment fund where I invest on a discretionary basis and then I have a newsletter where I share uh individual personal stock ideas of things that I own that people may find interesting and educational. So, I actually try to go completely the other direction. I I try to tie it to uh finance and investment evaluation, but not not advice to anyone on anything they should do. Um what I find interesting here, I think the biggest dislocation right now is that oil prices are up substantially and oil and gas stocks are up a lot less. And there's a few stocks that are up a lot. So, the Exxon and Chevrons of the world, they're up quite a bit. And I can't say I fully understand their valuations. But as you go smaller cap, there's a number of different producers and services companies that are completely transformed from a cash flow perspective, from a free cash flow perspective, ability to pay off debt, pay dividends, and in some cases like I wrote for my newsletter this morning actually, the uh or published yesterday. Um there's a company that needs to refinance its debt and it was trading as if it was going to go bankrupt. But as oil went from $50, let's say 4 months ago to $90 and it was, you know, over a hundred um last night, the financing environment for that levered distressed oil company should improve a lot. So I think there's a lot of mispricings of oil and gas stocks, whether they're producers or services companies. And I think that despite in some cases the share prices are up some, but the intrinsic values are compelling to me relative to almost any of the scenarios that we've discussed, including that the straight reopens and we just go back to seeing that there's no super glut and that there's almost no spare capacity for OPEC plus and that demand is rising more than supply. And yeah, there will be some demand impact from the short-term blip, but more likely there will be a larger supply impact and we may reset into higher prices. So again, the the direct my takeaway from this, the thing I'm finding most interesting is that a number of these companies are still ultra cheap and even cheaper in this environment than they were two weeks ago. Even if the stocks are up 20%, they might be worth twice as much or three times as much or something like that. And so that disconnect is extreme. I think it's because people don't believe this price move. Everyone I talk to, especially generalist investors, don't believe it. They think oil prices are going to fall. They tell me, "Hey Josh, don't you know there's a super glut? Don't you know that there's oil is well supplied?" And um so actually I did a a webinar for my investment firm a week ago and I decided to just publish it. I put it on Twitter, put on YouTube. It's like this is just stupid. like ignore the stuff about the returns. Focus on the the oil market and um when you look at it, it's just astonishing how balanced the market was ahead of this, how much higher the oil price should be. And I think I think we're going to see a reset in sentiment. um which should lead to a reset in valuations especially for some of these smaller producers that people essentially are treating like they're going away >> especially if we get some sort of prolonged uh situation in the Middle East where you know we lose 10 million barrels a day just imagine what would happen then right like similar to what we saw in the 1970s >> well we've already lost 10 or 20 million barrels a day and now it's just a question of how long will that last and like when will it recover And I think even if it recovers starting tomorrow, it can't recover all at once. So you're talking about a few month process to start recovering and or to to get to a fully recovered scenario. And we will have depleted strategic petroleum reserves. we'll have depleted other inventories and we'll just be in this situation where you know we were very similar to February without an attack on Iran where inventories are down the price was too low um there's not enough drilling activity and you know that would have just reset prices I think a lot higher absent any of this uh geopolitical mess >> all right Josh I'm going to put you on the spot now in December of 2026 six. Where's the price of oil? >> Well, so it looks like the forward curve has it at about 75 last I checked. And so I'm going to go higher, but I think it really depends on if we get 250 or something like that in the next couple of months from the straight still being closed. There's actually, I think, risk that the price of oil at the end of this year could be lower because you could end up with material demand destruction and then as supply comes back on and demand is disrupted and maybe you get a wave of supply, you end up with lower. But I I'd say I'd say it looks pretty good for let's say another five or $10 a barrel higher than that forward curve number maybe as a blended average. And you know, the reality is it's probably either going to be 100 plus or it's going to be let's say 65. And so, but I I I I'd say 85 is probably a decent number for for exit um for exit 2026. And again, I'm sure I'm sure I'll be wrong. I just don't know. I lean higher, but I don't know which direction. >> I know. I know. I just I love putting you on the spot. It's I'm always amazed at the oil market, in spite of it being one of the the largest commodity markets in the world, I I'm always surprised by the level of volatility. I mean, you talked about 2020 earlier, right? Where we saw the price of oil collapse to I think it was down 30% in one day, right? When uh the world shut down because of COVID and then, you know, two years later, we saw it rip to 125 bucks, right? Because of the invasion of Ukraine. It's crazy. >> Yeah. Yeah. And we could we could see it like just as easily tomorrow. It could be back at 8085 if there's SPR releases and the US withdraws from bombing Iran and you know comes to some sort of accord with the Ayatollahas and on the flip side we could see oil like the Qatar energy minister said at 150 not too distant from now to the extent that hostilities continue and maybe they escalate to the extent that more regional energy infrastructure is attacked and to the extent really that that one of those big wild cards either there being instability in the Gulf with one of the other countries or the Houthis entering the war and hitting uh Saudi oil exports in the Red Sea. Either of those you could see 150 extremely quickly. >> One thing is for certain, this is not good for the US economy, and it's going to be interesting to see how the numbers progress here in the coming months. We just saw a very weak uh non-farm number for the month of February. Unemployment's continuing to tick up. inflation has not gone away and especially if we get a prolonged price in the price of oil here, uh inflation's only going to tick higher and then you have all the uncertainty associated with it. Like these airlines, they're down 20, 30, 40%. Anything associated with travel has just been uh also kicked in the shins. So, well, listen, this has been a great discussion, Josh, and once again, I want to thank you for spending time with us today. If somebody would like to follow you online or read some of your insights or your research, where can they go? >> Yeah, so uh my investment firm is Bison Interests and they can find that at bisoninterest.com. And then like I said, I launched a newsletter uh last year. It's called Bison Insights. It's at bisoninsights.info and I share stock ideas and macro analysis and other sort of personal finance observations on there. Josh, once again, thank you and good luck in the markets. Thank you.
What's Next For Oil and How To Prepare | Josh Young and Jimmy Connor
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Transcript
Josh, thank you very much for joining us today. How are things in Houston? >> They're great. How How are things in Toronto? >> Not too bad. Yeah, we got spring right around the corner. It's starting to warm up here, which is good to see. So, we have a lot to discuss. The last time you and I spoke, which was early December, oil was trading at $60 a barrel, if you can believe that, and we saw oil rip through 100 bucks this past weekend, and now it looks like it's hitting down toward $90 a barrel just on the back of these headlines that the G7 are going to meet and possibly discuss releasing uh petroleum reserves. So, with everything that's going on right now, I want to hear your assessment of what's happening with the price of oil and where you think it's going. And if you think it's gone too far too fast given the situation, >> yeah, I mean I think it's the question of the day and the the right answer and the honest answer is that no one really knows and so in the context of that uh oil prices have certainly moved a lot but also I don't think almost anyone anticipated that the straight of hormuz would be blocked which essentially knocks out somewhere between 10 and 20 million barrels a day of supply in addition into substantial natural gas supplies and chemicals and various other other things. So, um this is clearly unsustainable and so the question is how long will it last and the longer it lasts and the more oil is offline for that longer period of time, the higher oil prices should go as well as the higher refined products and chemicals and fertilizers and food and various other things should go. And Qatar's energy minister has come out and said that if the straightup form moves continues to be shut down, oil could go to $150 a barrel. He didn't really discuss a timeline, but do you see that happening if it was shut down for another week, for example? Yeah, honestly I have trouble seeing a clear path to the straighter form moves being fully reopened anytime soon. Just given that the trajectory of the conflict, given that the uh Ayatollah of Iran was killed, given that a bunch of the Iranian sed senior leadership was killed and then um that the Ayatollah's son was put in and Trump has expressed displeasure about that. So the longer again the longer it lasts the higher the price goes. 150 sounds like a lot but it's actually not that high in the context of this sort of extreme black swan event essentially for oil. And I have a hat behind me that says 250 WTI which was my thought that at the end of this cycle at the peak that maybe we would be able to get to all-time high inflationadjusted oil prices. And you know, geopolitics has always played a role in setting oil prices one direction or the other. So, you know, I guess we shouldn't look up uh look down on it too much in terms of a potential catalyst for price changes. That being said, it does it is a very large oil price movement that we've already experienced, especially last night when it got closer to $120 a barrel. And so that sort of rapid movement does impact demand and it does have sort of economic ripple effects that could cascade if they weren't met with policy responses. >> And I like the fact that you brought up oil, the oil price on a price or inflationadjusted basis because we still pay relatively cheap oil. And uh when you look at the 1970s, for example, the Alan Kapoor war happened in October of 1973. We saw the price of oil go from $3 a barrel to $12 a barrel on the back of the um Arab oil embargo. And that happened in a relatively few short months. And then on the back of that, inflation ripped too. And then late in the 1970s, I believe it was 1979 when we had the Iranian revolution, the price of oil went from 14 to $38 a barrel. So, do you see a situation like that happening where we might see the price of oil not only double but triple in a relatively short period of time? Because you got two big issues going on right now. You have the straight up formoose shutdown. But then you also have Iraq which is the second largest producer of oil in OPEC producing 5 million barrels a day. They're I think I read 70% of the production has been offline now. >> Yeah. Well, there's not just that. There's also 5.5 million barrels a day of crude oil, condensate, and NGL's that are getting produced in Iran. Much of it's being exported still. So, people don't talk about this. It reminds me of the Russia Ukraine war where you have whole newspapers and whole news segments full of Russia bad uh and then zero coverage of you know in some cases the financial affiliates of these news companies these media companies buying the Russian oil for distribution or invested in the companies that were actively buying Russian oil to essentially net effectively support the Russian war effort. Similarly, while Iran is restricting exports of oil from other countries in that straight of Hormuz area uh and in the Persian Gulf, their exports are continuing um to some extent uninterrupted. They're they're exporting outside of the straight. They're exporting their they've allowed appear some cargos uh to go through to get to China. And so there's a this is not a sort of even war or even economic disruption. And um the reporting on it is very bizarre. And um again, it's one of those very strange things. If we're going to go kill a whole bunch of people in Iran in order to affect regime change and to free the tens of millions of people in Iran who are oppressed, at the very least, you'd think we could seize their oil tankers, sell that oil into the market to mitigate some of the supply shock that Iran has already caused and also to cut off the funding for these Ayatollas that are killing their people and right now shooting at American soldiers. It's a very very weird modern war. or contemporary war is is very weird and there's a lot we were talking off camera of profiteering and other sorts of strange activity by various folks who are involved that that again it's not reported on and it makes absolutely no sort of economic or strategic sense if there aren't people on an individual basis who are getting compensation outside of the alignment of the organizations and countries that they're supposed to represent. And so going back to what I was saying about the 1970s where we saw the price of oil go up three or four times. Uh do you see that happening now under this scenario? So let's just say that the base price was $60 a barrel. It's pretty well doubled that you know for a short period of time it was trading up or close to $120 a barrel. Could it go to 180? >> Yeah, I mean it could go to 250. So I think the way to think about it is that in the 1970s you saw oil prices rise like you said from very low levels to uh using your numbers $12 a barrel. What happened after that is you saw some demand destruction. you saw some pullback in uh price and so similar to what we saw you know oil prices went from negative in 2020 to what was it 125 130 or so uh again just using uh nominal dollars uh after Russia's invasion of Ukraine in March and then June of 2022 and then you saw prices retrace down more than 50%. Similarly, in the 1970s, you saw price surge over a few year period from the late60s to 1973. You saw the price reset higher, but then you saw it fall, what was it, 50%, 60%, something like that, and stay there for years with a very powerful narrative to sell, to get out, energy stocks are uninvestable, these companies are terrible, etc. Which may sound familiar. And then you saw this second wave of geopolitical issues. And you saw inventory degradation, well productivity declines. You saw a weird narrative similar to what we saw this year, earlier this year and last year about there being supply surpluses and various other things which which were ephemeral. They were um there were there was a small part of truth and a large part of propaganda and sort of nonsense and bad modeling and bad math. And very similar to that 1979 setup, you had had this enormous pullback in price from the 1973 highs. Here you have that big pullback in price from the 2022 highs. Similar sort of weird propaganda consensus, like very strong consensus for numbers that were measurably incorrect. You could see the inventory changes globally before this Iran war started. from January 1st to the end of February, like right before it started, you could see that inventories globally were falling rather than the IEA, EIA, Goldman, Morgan Stanley, the whole sort of all the expert consultant nonsense that they charge you so much money for. Those guys all had 3 to four million barrel a day in some cases over four million barrel a day surplus estimates for Q1. And it we saw a draw. it was down about 500,000 barrels a day uh on crude oil and then you know different products different amounts but still down millions of barrels a day versus the consensus so very very similar I think it's very astute to pick up on this this 1970s analogy and and again I think it's one of those problems that are multiaceted so um you know is there a risk as we chat about this on you know Monday middle of the day is there a risk that later today Trump changes his mind on Iran or does some big change. Is there a risk that the G7 go and release oil from strategic petroleum reserves? Is there a risk that there's reduced flow constraints? Absolutely. These are all sort of risks that would be downside short-term risks to the price. The flip side is that there's already been damage to refineries, damage to fields, field shut in, gas facilities shut in, and people I think somehow missed it. But Ukraine destroyed a crude oil tanker and a LNG tanker that Russia was using to export in the Mediterranean in the middle of all this. I think it was last weekend sort of while the US was bombing um bomb started to bomb Iran. And so you have enormous potential constraints to the oil and natural gas supply that are not fully captured in just the pure straight of Hormuz discussion. And there's still sort of further potential downsides to supply. But when you think about sort of what the path would be if there was a full they call it taco Trump chickens out. So if if there was a full Trump sort of deviation suddenly the ayatollas are no longer the bad guys. We win whatever. Even in that scenario, you have potentially months of supply offline and you have other embedded problems and you still have the risk of a potential Iranian revolution given the enormous uh protests and again you know I wish only the best on the people of Iran. They deserve freedom and not to be killed by their government. Um but they um you know there's a decent chance that there's going to end up being some sort of revolution. They're probably not entirely peaceful. And in that circumstance, we saw Iranian exports, which was the big thing, not really the OPEC stuff, which gets over reported and didn't really actually impact supply much, but Iranian production went from its all-time high in the late 1970s to down roughly 80% at its lows in the early 1980s on the back of the Iranian revolution. And so Iran again is producing or it was very recently producing 5.5 million barrels a day of petroleum liquids, oil, gas, condensate uh and natural gas liquids, sorry, in condensate as measured by Bloomberg. You know, different estimates on this, but very likely over 5 million barrels a day. If they have a similar production degradation as they had the last time there was a revolution in Iran, that on its own would be a catastrophic oil shock. And that on its own, excluding all the other impacts, ignoring that it'll take months to bring production back on from these different countries, all this other stuff, you're still in that sort of $250 WTI type environment. >> So, with the move in oil that hits everybody, me, you, and everybody else in the US and Canada, and every $10 move in the price of oil means corresponding 25 or 25cent increase at the pumps. What are you paying in Houston for a gallon of gas? Well, on uh Sunday I paid 265 a gallon, which actually felt like a lot? >> 260. And that's up how much ballpark? >> Yeah, up about 60 cents, 65 cents, something like that over the last couple months. >> So, probably a month ago, I was paying a buck 20 a liter Canadian. Uh now, it's a $150 this past weekend. A$150 a liter. Uh, if you do the FX on that and convert it over to gallons, that's about 420 a gallon. What do you think of that? >> Well, that sounds like it's about $3 a gallon of taxes and regulatory impact and so on. So, that's really uh I think that's reflective. Again, it's one of those things they like hide this government impact. Unfortunately, Canada's gone sort of pretty far to the left and pretty heavy on the regulatory and tax side of things. And uh you know they can't just tell you hey you're paying a dollar for the oil portion and $3 for you know our extortion of you to gound you know various programs that you don't believe in and didn't even want. Um so you know or or maybe now sorry it would be a $150 for the oil portion and you know the rest. So it's a very very strange uh very strange system in terms of uh in many countries experience that. So two things on that. So, one, cars are way more fuel efficient. So, excluding electric vehicles, when you look at hybrids and you look at regular uh gas powered vehicles, they're way more efficient than they were in the 1970s. So, there's way less impact. Like, you might not like that you're paying $4 US equivalent per gallon for gas, but it probably doesn't change your life. And in the 1970s, it changed people's lives. It was a huge portion of household expenditure. And frankly, there were gas lines, so you had to get in line just to even get gas, which of course is weird because then you're burning your gas as you're waiting in line to go um to go fill up your tank. So, um that efficiency matters a lot. And then also the high price in many jurisdictions like in Europe and in Canada, some of the sort of more socialistic, higher price, higher tax jurisdictions, um have meant that the cars are even more fuel efficient there, but also people are desensitized to the price. So, two things. One, when your government in your socialized country blames the US or Iran or anyone else for the high price at the pump, they're lying to you. It's them. It's not anything else. And it's very easy. You know, Biden would point to the Putin price hike. It was nonsense. It was the Biden price hike, not the Putin price hike. And it's the Carney price hike or the Trudeau price hike, not the Trump or Ayatollah or whatever price hike. But the other thing is that the the marginal propensity to consume, you don't actually you don't destroy much demand when you go from $4 a gallon equivalent to 450 because the oil price is up 50%. Like it just doesn't even it's a it's a marginal change in the price and people's elasticity of demand on on oil is very low. People will if you're filling up your tank of gas, you're not there for fun. You're there to fill up your tank to do whatever you want to do with your car and it's a relatively small percentage of the cost of car ownership. It's tiny compared to your cost of actually having bought or leased your car. And you know, just for the most part, people's consumption is almost nonvariable to price other than giant price shocks and other than extreme price movements way beyond what we've seen so far. >> Yeah, very good points. I mean, I think I would have to see the price of gas probably increase by 50% to have a meaningful impact, but uh you touched on Trudeau and Carney. Actually, Carney, so Trudeau implemented this thing called the carbon tax. And when Carney came in, of course, he's trying to gain popularity. So, he got rid of that and that resulted in a decrease of 17 cents per liter, which was a big positive. >> Uh oh, >> that's great. >> Yeah, I should say the other thing, too, is uh we're still paying a lot cheaper than the state of California. They're over five bucks a gallon. >> So, so mentioning California just real quick, there's actually there's this brilliant like cunning, cynical thing going on. So, California is very anti-oil broadly and Governor uh Gavin Newsome is, you know, very very hypocritical, but also very like publicly anti- oil, pro- environment or whatever he calls it. um they're doing something that's that's wild and it's actually sort again brilliant but sort of evil like um so they've started to award drilling permits. They started doing this last year. They they had held back drilling permits for a long time. You basically if you wanted to drill an oil well in California for the last four years or so you were mostly out of luck. Companies were sort of rationing their own remaining permits to be able to continue to drill just a little bit. There were all kinds of problems with the oil fields. California is a major legacy oil producer. Um, it used to produce, I think it was over a million barrels a day at one point. That's fallen a lot. It's almost California oil production's fallen almost as much as Venezuela on a percentage basis, which says a lot if you think about it. So, what I think they did is I think they realized Nuome's uh, you know, political consultants, they realized that Trump was saying drill baby drill, but the rig count in the US was falling. And so I think what they realized was, hey, we've already killed our drilling rig, you know, activity. We were at 50 rigs way back when. Now we're running there's fewer than five rigs running consistently on shore. What we can do is we can give these companies more requirements, but we can start awarding drilling permits and we can show that the state rig count is rising while the federal rig count is falling. and we'll make Nuome look like the drill baby drill candidate. Even though he's, you know, pro- environment, has all kinds of weird wacky rules that all kinds of requirements on this. It was deeply imperfect, very California. Um, but the rig count in California has more than I think it's more than doubled. It's certainly up at least 50%, but I think it's more than doubled. Um and at the same time in the last year and at the same time the the rig count in the US for oil rigs is down uh by about I think 25% or so. So why is it down? Um, so mostly it's down because the price has been too low and the price has been held too low partially through this sort of fake super glut narrative and partially through the Trump administration waving sanctions enforcement on Iran, which again is sort of wild when you think about what we're doing. We're actively killing them and blowing up their stuff. But like you know a month and a half ago we were just looking the other way as their sanctioned oil was on its way to India, China, various other countries. Um and then we also so we actively waved sanctions enforcement. Trump very very blatantly lied and said that he would put maximum pressure on Iran and then you could just see in the numbers there was not maximum pressure. There were sanctions that were stated and not enforced that could have been enforced and were not. Um, and then various other activities like going to Venezuela and telling everyone, hey, we're going to go grow all this production. Um, and 10 other things I can't think of offhand that essentially projected the policy sort of stance of higher oil production, but not through more economic development onshore US. And so that sort of like destroy the US producers but increased supply through any means necessary outside the US including pushing a pipeline in Canada. So I guess good for Canadian producers potentially if it actually manifested. Um that suppressed investment desire and also it kept the industry more disciplined. We're at $50 uh $55 where we were two months ago. It didn't make economic sense to drill remaining inventory. So the producers where they historically might have been a little more optimistic and tried to grow even if the economics didn't currently dictate it um the the mood was created essentially and the perception was created of persistent lower prices which suppressed activity. And again this is completely opposite to the Trump administration's economic policy on virtually everything else. And so it's just this very weird sort of like almost visceral hatred combined with misrepresentations. And when you know people hate you and they're going to lie to you and lie about you, you aren't likely to want to go outspend your cash flow and make your shareholders unhappy and make your lenders unhappy. You're much more likely to go do the opposite and be much more constrained. And so that that's my interpretation of what was happening. >> So you raised an interesting point then I I want clarification on this. You said a month ago the US was allowing Iran to to sell oil. Um or what did you say the US uh uh waved sanctions? >> Sanctions enforcement, >> right? Okay. So, they were allowed to sell oil. So, here we are a month later and now they're bombing the hell out of the Iran. Like, what happened in the last month? >> Well, we're also not still, as far as I can tell, fully enforcing sanctions on Iran. Again, we're literally I was ranting about that earlier. We're literally still there. you you have uh you know Saudi oil and Iraqi oil getting destroyed on tankers going through the straight and um you're still seeing Iranian oil and condensate and bunker fuel going out uh on tankers. Uh I think one or two might have gone through the straight but then a bunch of it's going through I forget the name of the the port but they have an export facility uh east of the straight of Hormuz that they've been that they've been active using and they're going ahead and exporting that oil and selling it and the US is actually still not enforcing sanctions and there there are mechanisms for enforcing it. So one of the big problems so there's a direct problem which is that money is being used to buy weapons and pay people to kill Americans and our allies. So that is a direct problem right now. But there's a a sort of larger sort of background problem which is when you impose sanctions and you have mechanisms of enforcement which we've shown because we were able to reduce consumption of Russian barrels through various other means through threats of tariffs through other you know directly sanctioning the buyers. So I guess they call it secondary sanctions. There's various other mechanisms of enforcement of sanctions beyond sort of just the direct sanctions. And so when you announce something and you don't enforce it, it's uh it's uh you know they have this saying peace through strength, it's war through weakness. It's sort of you you diminish power with no benefit to yourself. You're just uh or the opposite of like the Teddy Roosevelt speak quietly and carry a big stick. It's like yelling, but you know there's no there's no there there in terms of the the uh enforcement. So um what you'll see is that as a result of that is you have many folks economists and oil pundits and various other folks that say a sanctions are not enforceable and which is complete nonsense again because you can observe when they are enforced what happens to production what happens to exports you can see even in the Trump administration in their first term uh in 2018 they started to enforce sanctions on Iran and by 2019 I've like plastered this all over social media I put it on my newsletter a few times like you can see it very clearly that Iranian oil exports completely collapsed when those sanctions were actually enforced. And so again, it just is sort of this like weird, hard to explain, uneconomic violation of all the other Trump administration policies of free market and pro um you know, pro manufacturing in the US and pro- domestic industry. They just have this sort of weird visceral hatred for oil prices and for US oil companies. And so that's manifested through this policy deviation. And it's to such a degree that we're still not enforcing sanctions on Iranian oil while bombing Iran and fighting the people that are being paid and armed with the money from this Iranian oil that we're choosing not to seize, not to block, not to etc. And it's really shocking if that is the case because the price of oil, the price of gas at the pumps has such a big impact on everybody's lives. Not only consumers but truckers, airlines, so many other aspects of the industry or of the economy. >> Yeah. And I think the the problem is so people say, "Oh, hey Josh, you're just you're invested in oil companies. You want a high oil price. You got your 250 hat. I also got my 100 hat. And my thought is make oil $100 again." And I know it's like silly to talk about hats, but I think it's helpful in terms of sort of thinking about different price regimes. And if you fight the $100 oil, which is very moderate on an inflationadjusted basis for thinking about oil over the last 30 years, 50 years, whatever, especially compared to similar products and how high those prices are, uh how high rent is, how high real estate, like other real assets that are very similar, much much higher price appreciation. So, if you fight a $100 oil through price suppression, through bad rules, you end up with the $250 oil. If you don't sanction Iran and you don't enforce or you sanction them and you don't enforce the sanctions, you end up bombing Iran and you end up with the 200. It's just sort of this like weird uh you know, when you defer your problems and you try to pretend like they don't exist, you just create much much bigger problems. So I think rational economic policy applied to energy in the US would have put us on a track to sustainable development, let's say around $100 a barrel, maybe a little higher, a little lower based on different economic activity and various other factors, new fields, all kinds of just sort of the normal world from an oil economics perspective. and instead they sort of chose both the Biden administration and the Trump administration now have chosen this sort of much more highly volatile environment which it looks like despite the price moving down $25 or so from the high last night um it looks reasonably likely to me to lead to much higher prices potentially in the near term. >> And remind me again most of the oil coming out of Iran is going to China. Is that true? >> Um it looks like it. Historically, it's sort of it's gone to India, China, various countries via intermediaries. So, you have countries like Malaysia that sort of their their oil fields are in permanent or they're they're not permanent decline, but they're in significant decline and magically Malaysian oil exports surged in the last few years and various other places like that. So, um it gets sort of laundered and then and then mostly sent to China and India and I think most recently it was mostly just going to China. So what does this mean for China? Because they they are the second largest consumer of oil in the world. They consume 15 to 16 million barrels a day. So Venezuela that oil is no longer going there. I'm assuming the oil coming out of Iran, there's no oil leaving in Iran now or very little. What happens to China and does it have an impact on their economy? I mean, it should eventually have an impact on their economy. And one of the theories I've seen is that Iran is just the latest in a series of Trump administration actions to try to reduce energy supplies to China and stress their economy and energy security in order to achieve various goals from either a trade or diplomatic or whatever perspective. Um, honestly, I'm not 100% sure. And given the amount of speculation I've shared on things where I think I know more about it, I I don't really know about what it will do to China. I know they have a large SPR which may or may not be full. Uh may or may not have all the oil that they say, but they do seem okay for right now. and they're still getting shipments of oil uh both from Iran it looks like as well as from various other countries like the the Greek uh ships that are slipping through the straight of Hormuz at the urging of President Trump um are are delivering that oil to China it looks like for the most part >> and Josh just remind me again on a per capita basis the US is the largest what are the numbers on a per capita basis and how does that compare to China. >> Yeah. Um, I don't I I I look at this stuff, but I I hate giving numbers where I don't remember them exactly and so and I don't have it immediately in front of me, but it's something like um what is it 18 barrels per year consumed by an American and then of oil and then it's something like four or six barrels per year consumed by uh per capita by uh Chinese people and then um it's like half of that consumed by uh Indian people and so it's really the consumption is mostly it highly correlates with um per capita GDP and the US is at a little higher than it would otherwise map on per capita GDP but when you look at Chinese oil consumption for example if China on its current sort of decarbonization or whatever they call it because it's not really that cuz they burn a lot of coal too but whatever sort of like the fake ESG trajectory that they're on of you know limiting their hydrocarbon consumption uh particularly oil um even on that trajectory they should still double or more their oil consumption as their per capita GDP and as their sort of broader wealth spreads despite their socialist system they still have some degree of wealth creation over time for their middle class or equivalent And so as that happens, you still end up even despite their best efforts with higher um with higher per capita consumption of oil. You we saw this in Scandinavia where everyone was shocked that some of these Scandinavian countries shifted from uh gasoline powered and diesel-powered vehicles to electric vehicles and their per capita oil consumption did not decline by much. And everyone was shocked. But when you just think about it, you look around your room, right? You look at the clothes you're wearing, the chair you're sitting in, the walls of your room, your office, your home, whatever. Um the lights and what's powering them, the your modes of transportation. You just think about all of it. Um a good portion of your life has oil and oil products as direct inputs. And the wealthier you are, the more you're using. And again, it's not like wealth like, you know, in a giant mansion with whatever. It's just, you know, going from extreme poverty from, you know, huts with no no floor, you know, a dirt floor and um, you know, thatched roof to uh, western style of living. There's just a dramatic increase in uh, per capita oil consumption. >> And the other issue th those countries are relatively small population wise, like Norway's 5 million people like that. What's that the state of uh, Rhode Island? Yeah, I think I think it's less about the outright oil consumption and more about understanding what happens with a wealthy population in a country that's seeking to diminish oil consumption. And the reality is that the wealth seems to outpace the oil consumption reduction if that makes sense. And then similarly, you look at places like California where they try via taxes and intentionally high fuel prices and various other things. Um, and they're just not able to like the average Californian consumes way more oil than almost anywhere else in the world, including many US states. So, it's just, you know, the wealth overcomes things. And then, you know, I'm from there. You have the people with like they have one Tesla and then like a a giant SUV like a Ford Excursion or a you know a a G Wagon or whatever. And so yeah, they have their electric vehicle that they'll drive around town for their friends to see and then they'll have their actual car or truck or whatever that they like to drive around in. Um and so uh when you observe people's revealed preferences through chosen consumption rather than through re regulatory uh frameworks you you see just you see more directly the effect that I'm talking about in terms of higher oil consumption correlated to wealth. >> All right. So let's bring it back to investors. Everything I do is is for investing purposes and I'm always trying to think okay how can I make money on this or how can I protect myself from losing money. What are you suggesting to investors? How do they position themselves for the moves and the volatility that we've seen here just in the last couple of weeks? >> So, I try to not give anyone investment advice. I run a small investment fund where I invest on a discretionary basis and then I have a newsletter where I share uh individual personal stock ideas of things that I own that people may find interesting and educational. So, I actually try to go completely the other direction. I I try to tie it to uh finance and investment evaluation, but not not advice to anyone on anything they should do. Um what I find interesting here, I think the biggest dislocation right now is that oil prices are up substantially and oil and gas stocks are up a lot less. And there's a few stocks that are up a lot. So, the Exxon and Chevrons of the world, they're up quite a bit. And I can't say I fully understand their valuations. But as you go smaller cap, there's a number of different producers and services companies that are completely transformed from a cash flow perspective, from a free cash flow perspective, ability to pay off debt, pay dividends, and in some cases like I wrote for my newsletter this morning actually, the uh or published yesterday. Um there's a company that needs to refinance its debt and it was trading as if it was going to go bankrupt. But as oil went from $50, let's say 4 months ago to $90 and it was, you know, over a hundred um last night, the financing environment for that levered distressed oil company should improve a lot. So I think there's a lot of mispricings of oil and gas stocks, whether they're producers or services companies. And I think that despite in some cases the share prices are up some, but the intrinsic values are compelling to me relative to almost any of the scenarios that we've discussed, including that the straight reopens and we just go back to seeing that there's no super glut and that there's almost no spare capacity for OPEC plus and that demand is rising more than supply. And yeah, there will be some demand impact from the short-term blip, but more likely there will be a larger supply impact and we may reset into higher prices. So again, the the direct my takeaway from this, the thing I'm finding most interesting is that a number of these companies are still ultra cheap and even cheaper in this environment than they were two weeks ago. Even if the stocks are up 20%, they might be worth twice as much or three times as much or something like that. And so that disconnect is extreme. I think it's because people don't believe this price move. Everyone I talk to, especially generalist investors, don't believe it. They think oil prices are going to fall. They tell me, "Hey Josh, don't you know there's a super glut? Don't you know that there's oil is well supplied?" And um so actually I did a a webinar for my investment firm a week ago and I decided to just publish it. I put it on Twitter, put on YouTube. It's like this is just stupid. like ignore the stuff about the returns. Focus on the the oil market and um when you look at it, it's just astonishing how balanced the market was ahead of this, how much higher the oil price should be. And I think I think we're going to see a reset in sentiment. um which should lead to a reset in valuations especially for some of these smaller producers that people essentially are treating like they're going away >> especially if we get some sort of prolonged uh situation in the Middle East where you know we lose 10 million barrels a day just imagine what would happen then right like similar to what we saw in the 1970s >> well we've already lost 10 or 20 million barrels a day and now it's just a question of how long will that last and like when will it recover And I think even if it recovers starting tomorrow, it can't recover all at once. So you're talking about a few month process to start recovering and or to to get to a fully recovered scenario. And we will have depleted strategic petroleum reserves. we'll have depleted other inventories and we'll just be in this situation where you know we were very similar to February without an attack on Iran where inventories are down the price was too low um there's not enough drilling activity and you know that would have just reset prices I think a lot higher absent any of this uh geopolitical mess >> all right Josh I'm going to put you on the spot now in December of 2026 six. Where's the price of oil? >> Well, so it looks like the forward curve has it at about 75 last I checked. And so I'm going to go higher, but I think it really depends on if we get 250 or something like that in the next couple of months from the straight still being closed. There's actually, I think, risk that the price of oil at the end of this year could be lower because you could end up with material demand destruction and then as supply comes back on and demand is disrupted and maybe you get a wave of supply, you end up with lower. But I I'd say I'd say it looks pretty good for let's say another five or $10 a barrel higher than that forward curve number maybe as a blended average. And you know, the reality is it's probably either going to be 100 plus or it's going to be let's say 65. And so, but I I I I'd say 85 is probably a decent number for for exit um for exit 2026. And again, I'm sure I'm sure I'll be wrong. I just don't know. I lean higher, but I don't know which direction. >> I know. I know. I just I love putting you on the spot. It's I'm always amazed at the oil market, in spite of it being one of the the largest commodity markets in the world, I I'm always surprised by the level of volatility. I mean, you talked about 2020 earlier, right? Where we saw the price of oil collapse to I think it was down 30% in one day, right? When uh the world shut down because of COVID and then, you know, two years later, we saw it rip to 125 bucks, right? Because of the invasion of Ukraine. It's crazy. >> Yeah. Yeah. And we could we could see it like just as easily tomorrow. It could be back at 8085 if there's SPR releases and the US withdraws from bombing Iran and you know comes to some sort of accord with the Ayatollahas and on the flip side we could see oil like the Qatar energy minister said at 150 not too distant from now to the extent that hostilities continue and maybe they escalate to the extent that more regional energy infrastructure is attacked and to the extent really that that one of those big wild cards either there being instability in the Gulf with one of the other countries or the Houthis entering the war and hitting uh Saudi oil exports in the Red Sea. Either of those you could see 150 extremely quickly. >> One thing is for certain, this is not good for the US economy, and it's going to be interesting to see how the numbers progress here in the coming months. We just saw a very weak uh non-farm number for the month of February. Unemployment's continuing to tick up. inflation has not gone away and especially if we get a prolonged price in the price of oil here, uh inflation's only going to tick higher and then you have all the uncertainty associated with it. Like these airlines, they're down 20, 30, 40%. Anything associated with travel has just been uh also kicked in the shins. So, well, listen, this has been a great discussion, Josh, and once again, I want to thank you for spending time with us today. If somebody would like to follow you online or read some of your insights or your research, where can they go? >> Yeah, so uh my investment firm is Bison Interests and they can find that at bisoninterest.com. And then like I said, I launched a newsletter uh last year. It's called Bison Insights. It's at bisoninsights.info and I share stock ideas and macro analysis and other sort of personal finance observations on there. Josh, once again, thank you and good luck in the markets. Thank you.