Oil Insiders Seizing The Day
“The people of the United States don't recognize it, but the oil industry has given the greatest gift to the people of the nation, and that gift is the low cost of energy. Bottom line is this enables the country to be very competitive manufacturing-wise and in the world economy.”
– Ray Lee Hunt
The oil market perfectly illustrates the "winners and losers" of the MAGA economy
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Andrew Packer,
Grey Swan |
Reader,
March 19, 2025 — Over the past 25 years, commodity stocks have been a core part of my investment philosophy. Lumber, natural gas, and copper stocks put me through college.
In the past 15 years of investment writing, it’s been my pleasure to cover the ups and downs in gold, silver, uranium, copper, lumber, and even hog futures a time or two.
And for most of that time, I could make one truthful claim: Whatever ups and downs a commodity had, it would never go to zero.
There would always be a real-world value. Or even speculative demand for something that was cheap enough. Even grains, which at times have bumper crops, aren’t valued at zero.
However, five years ago, as the pandemic shutdowns started, energy traders couldn’t get out of oil fast enough.
That’s not hyperbole. The last traders who needed to sell out became so desperate that the price of oil went negative. So much for the claim that a commodity could never go to zero!
At the peak of the oil sale mania, oil traded for negative $40 per barrel.
Technically, nobody was taking a barrel of oil and getting paid $40 to do so. Nor were you getting paid $25 to fill up at the pump. It was an expiring futures contract that went negative and burned investors who stayed in oil too long.
In a world where nobody was driving, it was hard to see a climb out. Yet oil did climb out, moving sharply back to positive territory. Shortly after Russia invaded Ukraine, oil prices spiked to over $100 per barrel.
Since then, they’ve drifted back down.
2024 was a poor year for oil, with prices declining about 20%. However, looking at the five-year chart, we can see that oil’s decline is now lining up with potential support around the $60 price range:
If you’re a swing trader, that’s the kind of price level where you’d want to buy oil or buy oil stocks for a possible bounce. Seasonally, oil rises into the summer months, coinciding with the peak driving season in the U.S.
Of course, right now, there are some fearful headlines for the oil industry. There’s rising talk of a recession. Reduced global trade from tariffs. And President Trump’s call to “drill, baby, drill,” encourages more production.
More supply, all else being equal, means lower prices. Good for consumers, but that’s usually not good for energy producers. Or is it?
Oil could be ground zero for the phenomenon of what we call “winners and losers.”
Simply put, capital will start to move into specific sectors or even specific stocks… and their prices will rise. But capital will also flow out of specific companies that could fall behind.
The MAGA agenda of low taxes, deregulation, and tariffs will not create a straight line higher for stocks like we had in 2023 and 2024. We’re already starting to see the market split out the companies that can thrive under these conditions and which will suffer.
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An Industry Insider’s Perspective
To get a sense of what this means, I spoke with the folks at Prairie Operating (PROP). As you may recall, last September, I toured their drilling operation in Eastern Colorado.
I was impressed with their combination of fracking tools and AI technology to find optimal drilling sites. Prairie is able to profitably produce oil at today’s prices and to do so in the state with the toughest environmental laws.
I’ll admit I expected to hear a mixed sense of today’s markets from the Prairie team. After all, pro-drilling policies are good for the industry. But not to the point where prices take a hit.
Yet the investment team was pretty happy. In fact, Prairie recently acquired about 24,000 acres of production, increasing their reserves by nearly 78 million barrels of oil.
Prairie executives tell me that the buy was made from a private seller and that Prairie expects to continue expanding production. Oil could even break below its three-year support price of $60, and they’d still be able to make a profit.
This could be a sign of a broader change underway in the energy sector. Instead of seeing big swings higher or lower, the industry will benefit from today’s conditions by consolidating.
Investors who bought oil assets expecting to sell for $80+ per barrel are likely disappointed with their returns, as oil is currently at $65.
Over the next few years, a low-cost, AI-powered energy player like Prairie has its game plan in place: Buy when there’s an opportunity to get a reasonable valuation, and find ways to further drive efficiencies.
In a way, it’s a bit odd to see. But at much higher prices, the capital moving into the oil market would be unsustainable in time.
The next few years could provide a chance for conventional energy companies to substantially improve their efficiency and operations. That could include more transactions involving privately held oil lands, or larger oil companies could acquire smaller players to increase their reserves.
The chances of oil prices going negative again are zero. Since it’s already happened once, we can’t rule out it happening again. But it’s incredibly unlikely. Especially in the new era of “drill, baby, drill.”
But this is just another sign of what Addison and I see happening in the MAGA economy: Some stocks will be winners, and some will be losers. As we can see with oil, it applies to asset classes as well.
Yes, oil prices will likely keep trending lower after a summer rally. Investors can likely see a moderate bounce in oil and gas stocks in the months ahead.
But after that, it’ll be harder to find winning stocks as increased drilling and lower prices become the norm.
But that doesn’t mean that every energy stock will be a loser. Finding the highest-margin operators in today’s conditions will be crucial for future success.
We’ve just put together new research on the energy space with a specific niche that looks like a clear winner no matter where energy prices go. It’s an area where the MAGA agenda fits in nicely, especially if, as we expect, some of the trade war headlines cool in the months ahead as some more favorable trade deals are struck.
Regards,
Andrew Packer,
Grey Swan
P.S. Our latest research on the real, unique, story behind the border crisis with Mexico is available to paid-up Fraternity members in our Library of Special Reports.
Please send your thoughts on stocks and sectors that may be winners and losers in the MAGA economy to addison@greyswanfraternity.com.
How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.
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