Why Buying Low And Selling High In Energy Is A Great Investment Decision
Dallas, Texas – I know a lot of people are concerned about the glut of oil on the markets at this time, and I agree, the price of oil could drop below $40 a barrel in the near term. This is exactly the reason why I think it’s in the best interest of savvy investors to get involved now. The big money is made when oil prices are low. As Baron Rothschild said, “You start buying when there is blood in the streets.” Warren Buffet has lived by this mantra as well and is arguably one of the best investors in our lifetime. His Berkshire Hathaway stock is concrete evidence that the best time to buy is when prices, within a cyclical market, are at the bottom or at their lowest points.
When oil prices went negative in March of this year, many people were shaking their heads in disbelief because, how could the price of a barrel of oil go negative? How could the prices of a barrel of oil, which costs big bucks to get out of the ground, be worth less than zero? I’m sure this drastic drop probably had my great grandfather turning over in his grave.
JP Morgan recently stated oil prices could be $190 per barrel after the pandemic. Why? Because the best cure for low oil prices is low oil prices. What happens when companies quit drilling, as evident by the low rig count, is that our supply decreases. As supply decreases and demand is steady, prices go up.
How long will we need oil? That’s the $100,000 question. Articles I’ve been reading state we will have peak oil around 2030. What does this mean? We could have multiple cycles of oil prices in the future.
Many experts in the industry state we may see the demand for oil decreasing in the decades ahead; however, at this time, we are confident that Texas Tea will be a commodity the world will need for many decades to come. It’s important to remember crude oil is used for more than just fuel for motor vehicles; our use for this is only about 50%. When you think about where and how oil is used throughout our country, it is truly amazing the number of things we don’t associate with having it. A few examples of products with oil as a component are wax paper, cosmetics, paints, dry cleaning products, plastics, foams and more. Personally, I don’t see the U.S. transitioning to 100% electric vehicles any time soon.
The cure for low oil prices is low oil prices. As oil prices have declined, big money has left the oil patch. This is evidenced by the amount of non-drilling activities. Rig count is extremely low (down approximately 60% over this time last year) and with no drilling activity, U.S oil production will hit bottoms we have not seen in years, which will send prices higher. (It’s simple supply versus demand.) Because oil and gas investments are a great alternative product, we’re looking to the near-term future.