Oil - Sweet, Dense and Beautiful Energy🛢️

Last month of the year on deck. You should be meeting with your accountant to lock in any tax minimization tactics and strategies. One of the most basic is to sell the losers in your portfolio if you have capital gains to offset.

It’s never that simple as there are other details to be wary of (regs like wash-sale rules prevent you from buying back a stock you’ve sold within 30 days and capturing the tax benefits) so consult a CPA or educate yourself on the regulations (and remain a subscriber as we break tax minimization strategies down for you on the regular 🤙🏼).

Ok, back to the broad lessons and then we’ll talk what’s next for markets and how to position yourself to win big next year.

In Lesson 1, we looked at inflation, and why it’s likely to be here awhile.

In Lesson 2, we talked about ‘Higher for Longer’, the Fed’s response to said inflation.

In Lesson 3, we dove into the 10 Year US Treasury Bond and why it matters as a benchmark.

And last week, we talked about poker, trading and a huge market ‘tell’ from a Wall Street shortselling legend throwing in the towel.

Poker has taught me to look for ‘tells’ in markets and life, and one of the biggest ‘tells’ when it comes to forecasting markets is the price of oil.

Lesson 4: Oil.

Oil was one of the top performing assets this year until October and my Alpha360 subscribers took full advantage of it.

Back in March, I noted that we might see a retest of $60, and this would be the best chance we have to buy oil since the Pandemic market break gave you a once in a generation opportunity to get long the energy sector at ridiculously cheap prices.

Since that call, oil moved from $65 to $95, before backing off in the last 2 months to the $75 level. I believe oil will have a rough 6 months as a semi-painful recession becomes obvious and inevitable. In a recession, demand goes down for nearly everything, oil included. Less demand means more supply which means lower prices...for now.

Coming out of the recession, oil and certain energy stocks will be a must-own.

Oil, often dubbed "black gold," holds unparalleled significance in the global economy. As the primary energy source of the world economy, it powers industries, transportation, and households, ensuring the smooth functioning of modern societies.

Oil-derived products, from gasoline to plastics, permeate every sector, influencing production costs and consumer prices. Its strategic importance also makes oil a pivotal factor in geopolitical relations and decision-making.

Moreover, global financial markets are highly responsive to oil price fluctuations, reflecting its integral role in economic health. In essence, oil is the lifeblood of the contemporary economy, driving growth, innovation, and international collaboration. Without it, modern civilization would grind to a halt.

Climate activism, ESG initiatives, Green Grifters and the current political climate, particularly under President Biden, have inadvertently set the stage for rising oil prices. Environmental movements are driving a questionable worldwide shift from fossil fuels to greener alternatives, prompting companies and investors to focus on sustainable energy.

The surge in ESG investing has reinforced this trend, leading to more financial institutions stepping back from traditional oil investments. At the same time, the Biden administration's misguided environmental agenda, focused on reducing the U.S. carbon footprint, has led to tighter regulations on domestic oil and gas production.

While these initiatives stem from the noble yet misguided pursuit of mitigating climate change, they dangerously constrict the oil supply chain. With diminishing investments and policy-driven curbs on exploration and drilling, the industry's production capacity is inevitably stifled.

As the world emerges from pandemic-induced slumps, oil demand is rejuvenating, leading to a pronounced supply-demand mismatch. This disparity, characterized by dwindling supply amidst rejuvenated demand, is a textbook trigger for inflating prices.

A significant point to ponder amidst this shift is that alternative energy sources, despite their promise, cannot remotely supplant oil. Even after trillions of dollars of investment (or malinvestment), alternative energy sources still only make up 2-3% of total energy needs.

Oil's energy density, transportability, and versatility in applications from fuel to petrochemical products remain unparalleled. Alternative energies face challenges in scalability, energy storage, and the broad spectrum of utilities oil addresses. While renewables can complement our energy needs, the complete eradication of oil remains a distant, if not unattainable, ideal.

Consequently, as we transition to more sustainable energy sources, the unintended constriction of oil supply, juxtaposed against its irreplaceability, threatens to push its prices to unprecedented highs.

The recent rise in oil back to the $90s this Fall drove gas prices higher. With that small spike we noted it briefly cost over $100 to fill up your tank again. The Biden Administration has also depleted our Strategic Petroleum Reserve (SPR) down to dangerously low levels and failed to replenish it when oil was trading in the $60 range.

Sometime next year we may hit a perfect storm where the economy comes out of recession, and demand for oil spikes as supply remains at artificially low levels due to bad public policies and a mistaken focus on climate change and alternative energy.

As Doomberg likes to say, "In the battle between physics and principles, physics always wins."

Drill baby drill.

Next issue I’ll tell you ‘What to Do Now’ and explain how we look at constructing a bulletproof portfolio at Alpha 36Ø that includes 2 very interesting energy sector plays.