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Why this Treehugger is Bullish on Oil

Jeff Siegel

Written By Jeff Siegel

Posted December 18, 2023

A couple days ago, two cargo ships were attacked by Yemeni-launched missiles in the Red Sea.

The attacks were instigated by the Houthis, which is an Iranian-backed rebel movement.

Following that attack, four major shipping companies have paused operations in the region …

  • Hapag-Lloyd (OTCBB: HPGLY) – $26.16 billion market cap
  • Maersk (OTCBB: AMKBY) – $30.56 billion market cap
  • MSC (NYSE: MSM) – $5.69 billion market cap
  • BP (NYSE: BP) – $100.72 billion market cap

These four companies have a combined market cap of $163.13 billion.  

To put that in perspective, this is more than the GDP of Morocco. 

With so much treasure at risk, it should come as no surprise that the U.S. military is providing security services to ensure those shipping lanes are safe.

At the moment, there are two carriers in the area, and it is possible more may head to that region.

Now oftentimes, when analyzing what I like to call the “true cost of oil,” analysts don’t pay much attention to what it costs the U.S .military to protect those shipping lanes.  And by U.S. military, I mean taxpayers.

Make no mistake, these costs are not trivial. 

According to a 2018 analysis, the U.S. military spends about $81 billion per year to protect global oil supplies. 

And then, of course, anytime there are threats in those shipping lanes, oil prices skyrocket, which in turn affects the price of shipping while also burdening everyday Americans who need to fill their tanks to get to and from work every day. 

Fortunately, since 2018, the U.S. has been the largest producer of oil in the world. Imagine if that weren’t the case, and we were still heavily reliant on oil from the Middle East.  You think gas prices are high already, they’d probably be close to double what you’re paying now. 

Domestic oil production, from a national security standpoint, cannot be underestimated.  And the same will hold true as we transition from internal combustion to electric vehicles.  Only instead of domestic oil production, we’re talking about the domestic production of the necessary metals required to produce EV batteries, which include: lithium, manganese, cobalt, graphite, steel, and nickel.

Investors looking to profit from this transition, and who also understand the value of domestic supplies of these key metals, would be wise to have some exposure to both domestic producers of these metals as well as some of the companies that are recycling batteries in an effort to provide low-cost supplies.

Both miners and recyclers are integral to the future of the EV industry, and while prices of these metals are quite low at the moment as the EV industry cools off a bit, long-term these will be the kinds of stocks you’ll want in your portfolio.

It’s quite clear that the U.S. has learned its lesson of being overly dependent on foreign supplies of oil.  It’s why Uncle Sam spent billions of dollars subsidizing fracking technology and shale development.  The same will happen when it comes to building up America’s domestic production of all the things that are required to produce and fuel electric vehicles. 

Of course, I don’t say this as someone who champions subsidies.  If you’re a regular reader of these pages, you know I loathe government interference in what’s supposed to be a free market.  But that doesn’t mean I won’t take advantage of those subsidies if it can help us create wealth.

If that makes me a hypocrite, so be it.  But know this: when oil prices begin heading north again, not only will I be benefiting from those high oil prices, I’ll also be mocking them as well, as I drive past my local gas station every day, in my Tesla, which has a “full tank” every morning after charging at night, while I sleep. 

Truth is, I could even make the argument that profiting from oil bull markets for nearly 20 years helped me pay for my electric car.  An irony I find most enjoyable. 🙂 

 

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