Oil Prices Dropped, What Does It Mean?

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Ben Fraser: Welcome back to another episode of the Invest Like a Billionaire Podcast. Ben Fraser, along with Bob Fraser coming at you with another top of mind episode, short, sweet, to the point on relevant things that are happening. And today we’re going to talk again about oil. We talk a lot about oil prices and if you listen, you’re probably like, why are these guys so focused on oil?

Well, it’s a theme that we’ve been following for a long time. We’re actually very bullish on oil prices over the longterm to make a lot of investments into oil and gas. And it’s been interesting over the past week here, we’ve seen oil prices take a pretty big dive, right? Into the low seventies.

I think today as we’re recording this on Friday oil’s kind of mid seventies. And we’ve been saying, Hey, all prices could go higher, could go three digits. We saw three digits, which are pretty close to it earlier this summer. So a breakdown was happening here. And is this kind of a short term thing?

Does this change our thesis or is this kind of just a little blip? 

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Bob Fraser: A bunch of things are going on. Our thesis is still alive. We know, we look at macro trends, mega trends. So these are big trends. We’re not looking at the waves. We’re looking at the tides and the tides.

We’re 100 percent behind, standing behind our prediction for triple digit oil at some point in the next few years. But so what’s happening right now is we’re seeing a lot of changes in the market, so we’re seeing inventory swelling recently and what’s happening while OPEC, did the production cuts, right?

But what’s happening is, as usual happens, all the OPEC countries do not actually cut their production. So they keep producing. So that’s been one thing we’re seeing. We’re seeing Russia continue to bring their oil to market and evade the sanctions, effectively dodging all the sanctions.

And so they continue to bring their oil to market. We’re looking at additional extra supply in the midst of softening demand. So we’re seeing, for example, China continues to surprise to the downside. Its economy is just in the doldrums.

And in our view, that’s going to continue. It may be a short term turnaround, but China is a big problem. The reshoring trend we’ve been talking about where manufacturing is moving back to America. That hurts China. If you look at all the sanctions that hurt China, all the trade wars, where Biden just did the chip deal where he basically locked down exports of chips.

That hurts China. Their workforce, their aging workforce that hurts China. So China is just gonna, it says having a lot of trouble and they’re probably, the days of hyper growth China are over. So we’re seeing. Softness in China and then we’re seeing so the jobs report just came out and it was it showed joblessness ticking up slightly And so oh, now maybe we are going to have softness of demand in the United States as well So all these things you’re looking at a little too much supply a little too much demand and then the geopolitics so every time there’s a war, you know a russian raids ukraine Hamas invades Israel.

You’re going to see oil prices tick up with these fear factors, right? If oil is going to be in short supply. And then what happens? Now all those things come down right so that emotion that energy. Okay. This is not going to cause an oil Armageddon in the world.

Ben Fraser: This is a number three that we initially thought about. 

Bob Fraser: And so all those things come down. So again, it doesn’t change our macro thesis, but that’s really what’s going on. 

Ben Fraser: I think that’s too. I think the nature of oil and gas, relative to say real estate investing that we invest a lot in and our investors do as well, is a lot more volatile, right?

The swings you can see over time can be, can feel really big. And it feels Oh man, Everything just totally changed and now the thesis isn’t intact. If you’ve heard any of our investable mega trends, which again, if you haven’t listened to that, do that, we’ll link to it in the show notes here.

We talk about some of the long term trends, right? And over the long haul, even though you have ups and downs, ebbs and flows, price volatility, there’s a pretty clear trend, actually massively. Clear trend that supply in the future will be less than it is now because we’re not making the investments into new production like we have in the past and over the past, seven to eight years, we’ve seen a massive drop off over 50 percent in investment into new production.

And so that just creates this kind of cap on supply that is declining over time. And so even if there is softness of demand, you’ve explained it before where you have this kind of decline. Of demand or of supply, but demand continues to trend a little bit lower in the short term because, Hey, China’s, struggling as an economy, maybe we’re about to hit a recession and other things that are in the short term.

But as soon as that ticks up and we start seeing interest rate cuts next year, which is now being priced into the market. And, we may have a soft landing. And all of a sudden, the economy comes roaring back. That’s going to only really do one thing, right? Because the demand trips that supply.

And so long term projections, what we’re seeing in the long term being only right now, a few years is what most predictions are out too. So it’s a thesis intact. It’s important to understand what’s going on. What’s driving the short term, but also understanding the long term drivers as well. 

Bob Fraser: And it’s actually good news if you’re buying oil, right?

So if you’re like we are, we’re accumulating oil producing assets right now. So this is welcome. It means we get better deals. And as we accumulate these assets for the long haul. So it’s called ” buy time. 

Ben Fraser: Buy time. Buy low, sell high. Awesome. All right. We appreciate you guys listening to the podcast.

It was just a short one to pop in, talk about what we’re seeing. Cause we know we talk a lot about oil. We saw a pretty big drop here, but wanted to give our insights and we’ll link some of the articles here in the show notes that you can do some more research on. Thank you all for listening.

So tune in for the next episode of the invest like a billionaire podcast. Feel free to share with a friend, leave a review. We always appreciate that. Thanks so much.