This post is opinion only. See full disclaimer below.
I want to discuss 2 critical issues.Its been a while since I posted to this site, but that will be changing now. I want to begin here a discussion of the current oil macro environment and in a subsequent post how some of the macro issues play out in Brazil with what they call their “national champion” PBR.
The peace in the Middle East, the tentative end of the war in Gaza, and Trump’s goal to open up the oil spigots all have put a short term cap on the oil price. Trump has even talked about gas below 2 dolla a galloon. It’s quite possible that the US allies in the Middle East especially Saudi Arabia will increase oil production in line with these goals although the ;llatest news suggests that OPEC will be if anything pausing increasing quotas going forward at least for a while. If oil stalls at these numbers at least you get a nice dividend in many cases in these stocks while you wait for the cycle to change which can’t be said about a lot of other stocks and sectors.
However, as always the goal in this site is to also to make you aware of various other counterfactuals on the horizon potentially being too ignored by markets and as usual in many cases with political as much as economic aspects.
First, one of the world’s largest oil reserve countries, Venezuela, is, if the news is correct, about to be attacked by the US. America has prepositioned substantial numbers of military assets and the regime in power definitely wants to get rid of Maduro. That’s not terribly surprising given Trump’s war agains the drug cartels and drug gangs in the US some of which sem to have strong Venezuelan ties.
Also do you think an anti-communist Cuban-American Secretary of State from Florida Rubio is likely not to go hard against a Castro-like communist dictator in the region? Obviously this is not being considered enough by the markets and could shorter term possibly escalate the oil price.
If successful and a new leader possibly the recent Nobel Peace prize winner takes over more medium and longer term the oil sector in Venezuela could become suddenly fully open for business as never before — so this could all go different ways but is a key variable.
Second, the needs of AI for incredible amounts of energy which will simply not be met by nuclear energy enough suggests that demand for oil medium and long term may be spiking significantly. I’ve written about this very eraly in the process at a point when it was much less understood by the general public.Unless AI suddenly collapses in a bubble like 2000 dot-com crash–not a total impossibility–and even then perhaps but certainly on the current trajectory this oil demand will only continue to increase and is bullish for the sector.
Third, as I’ve written also about before there are lots of indications that the global elites are moving on to a new political narrartive from the clean energy that has dominated much of the world now for decades.Certainly the need for a new more militarily engaged role for the EU and increased spending on that front and the prospects of AI being a superior control mechanism–I think overrated–to a crabon centered power focus all have made clean energy inceasingly a secondary narrative at best something I predicted would happen.The fact that the US has largely walked away from this model has certainly accelerated this process but even as strong an advocate foe alternative energy as Bill Gates its been reported is now suggesting mankind can withstand climate change.The EU is also retginking in some ways its green agenda. I’ll remain neutral on the broader issues here. My point i ssimply that the prospects for th oil sector are geopolitically improving if anything.which is a far cry from wat was he case not oo long ago.
Fourth, everyone gas factored in with oil the risk of rade wars but few just how much a reconsttuted international system could lead to incredible economic growth. The futre is still unwriiten but if the trade wars are resolved and the GDP rate in the US continues to expand back to much eralier 20th century high rates it could be a powerful engine for global growth most 20 and 30 somethings in Wall Street can barely even imagine and have no reference for understanding.And the energy needs of the US could expand to a very high degree.
Fifth, Trump is slowly but surely ratcheting up the sanction pressure on Russian oil as I predicted would be the case. The most extremesantion regime reamins not yet riggered which would be to dent contries still nuying Russian oil access to the international settlement system more broadly, but the pressure on China and India to buy other tan Russian oil is consierable and they seem to be responding. More oil from Russia taken off the market could geatly increase the demand fo the remaining availanle supply. Again this situation is comlicated as if bitworks and a peace deal on the Ukraine war results Russian sanction might then come off even fairly quickly but it is a key factor.
If you are analyzing the oil sector this all suggests that you need to consider mich broader macro-[political factors that may effect volatility and the oil price greatly. Do some of these factors outweigh the definite efforts to keep a lid on the price of oil for American consumers—its too soon to tell but they are all key political factors largely ignored by conventiional lower level commentary. In any case together they suggest the sector will continue to play a key economic role for many years to come.
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