Over the weekend, we had some family and friends over to grill some burgers and eat some crabs. As often happens at these things, they asked me about the state of the market and what's looking good for the next quarter.
As always, since I don’t know anything about their personal financial status, how much risk they should assume, or how much work they want to do, I tell them to buy low-cost index funds.
But many people, like you, want to do a bit better than the average and are willing to do some research and take some risk. I mean, if you have some strong evidence that oil stocks should outperform over the next six months, you should buy up oil stocks before it happens.
Chart of Profits
Here is a chart put out by BofA Global Research. It shows that U.S. crude inventories are at lows last seen in 1982. We usually have 65 days of inventory. Right now, we have just 46 days until the oil runs out.
As I write this, the price of WTI is at $87.53 a barrel, and Brent is at $90.74 a barrel. Back in June, WTI dipped below $70. That downtrend has now reversed.
Supplies are low because President Biden pulled oil out of the SPR in a gambit to win the midterm elections. This worked, but it was a one-off deal; it won’t happen again. I doubt the government will start buying oil in earnest to refill the SPR, but it can’t sell much more. Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
Inventories are also low because for the past eight years or so banks have been unwilling to lend for new drilling and exploration. This is a backlash to a lot of bad loans that never turned a profit during the boom fracking years.
Furthermore, the political will is against new drilling, so permits get mired in red tape and fewer people are willing to take the risk in the hunt for black gold.
On top of this, OPEC and Russia have announced steep production cuts that will continue at least until the end of 2023.
We Demand Oil
On the demand side, the IEA reported that world oil demand is hitting new record highs, boosted by strong summer travel, an increase in oil use for power generation, and surging Chinese petrochemical activity.
And it's not just the U.S. — the IEA says oil inventory levels are low worldwide.
Lately I’ve been buying up oil companies, and you should too. If you like pipelines and fat dividends, you might take a look at Enterprise Products Partners (NYSE: EPD), which has a P/E of 10.85 and pays a 7.5% dividend. The chart is in an ascending triangle and looks like it will break out at any moment.
You might also like MPLX LP (NYSE: MPLX). It's another pipeline and storage company for oil and natural gas. The company has a P/E of 8.78 and pays a dividend of 8.94%.
Or you could buy the best oil and natural gas company on Earth, ExxonMobil (NYSE: XOM). This blue chip energy stock has a P/E of 9 and pays a 3.15% dividend.
All the best,