Oil Prices Dropped, What Does It Mean? | Top of Mind Series
Ben Frazier and Bob Fraser say oil's dip to the mid-70s is a buying opportunity. Capital investment in new production dropped over 50% in seven years, creating a structural deficit they expect will push prices into triple digits. Demand concerns from China and rising U.S. unemployment are temporary headwinds.
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Welcome back to another episode of the Invest Like a Billionaire podcast. Ben Frazier along with Bob Fraser coming at you with another top of mind episode. Short, sweet, to the point on relevant things that are happening. And today we're going to talk again about oil. We talk a lot about oil prices, and if you listen, you're probably like, why are these guys so focused on it? Well, it's a theme that we've been following for a long time. We're actually very bullish on oil prices over the long term. Been making a lot of investments into oil and gas. And it's been interesting over the past kind of week here, we've seen oil prices take a pretty big dive, right? Into the low 70s. I think today as we're recording this on Friday, oil's kind of mid-70s. And so, you know, we've been saying, hey, oil prices could go higher, could go 3 digits. We saw 3 digits, you know, or pretty close to it earlier this summer. So break down what's kind of happening here and is this kind of a short-term thing? Is this, you know, change our thesis or is this kind just a little blip. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today.
A bunch of things are going on. Our thesis still is alive. We know, we know, we look at macro trends, mega trends. So these are big, big trends. We're not looking at the waves, we're looking at the tides and the tides. We're 100% behind, you know, standing behind our prediction for triple-digit oil at some point in the next few years. But so what's happening right now is we're seeing a lot of changes in the market, you know, so we're seeing inventory swelling recently and what's happening? Well, OPEC, you know, did the production cuts, right? But what's happening is, as usual happens, all the OPEC countries do not actually cut their production. So they keep producing. So that's been one thing we're seeing, we're seeing the Russia continued to bring their oil to market and evade the sanctions, effectively dodging all the sanctions. And so they're continuing to bring their oil to market. We're looking at, you know, so, you know, kind of additional extra supply in the midst of softening demand. So we're seeing, for example, China continues to surprise to the downside. Its economy is just in the doldrums. And in our view, that's going to continue. I mean, it may be a short-term turnaround, but China is— China's got big problems. The reshoring trend we've been talking about where manufacturing is moving back to America, well, that hurts China. If you look at all the sanctions, that hurts China. All the trade wars, you know, where Biden just, you know, did the chip deal where he basically, you know, locked down exports of chips. Well, that hurts China, their workforce, you know, their aging workforce, that hurts China. So China is just going to, it's just having a lot of trouble and they're probably, you know, the days of the hypergrowth China are over. So we're seeing softness in China and then we're seeing, so the jobs report just came out and it was, It showed joblessness ticking up slightly. And so, oh, well, now maybe we are going to have softness of demand in the United States as well. So all these things you're looking at, a little too much supply, a little too much demand, you know, and then the geopolitics. So every time there's a war, you know, a Russian invasion, Ukraine, Hamas invades Israel, you're going to see oil prices tick up with this. With this, you know, fear factors, right? Of oil is going to, you know, be in short supply. And then what happens? Well, now all those things, you know, kind of come down, right? So that emotion, that energy, okay, this is not going to cause an oil Armageddon in the world.
Yeah. This isn't World War III that we initially thought about either.
It's not World War III. And so all of those things come down. So again, it doesn't change our macro thesis, but that's really what's going on.
Yeah, I think that's too, I think the nature of oil and gas relative to say real estate investing that we invest a lot in and our investors do as well is it is a lot more volatile, right? I mean, the swings you can see over time can feel really big and it feels like, oh man, everything just totally changed and now the thesis isn't intact. But if you've heard any of our Investable Megatrends, which again, if you haven't, Listen to that, do that. We'll link to it in the, in the show notes here. We talk about some of the long-term trends, right? And over the, the long haul, even though you have ups and downs, ebbs and flows, your price volatility, there's a pretty clear trend, actually a massively clear trend that supply in the future will be less than it is now because we're not making the investments into new production like we have in the past and over the past. 7 to 8 years, we've seen a massive drop-off, over 50% in investment into new production. And so that just creates this kind of cap on supply that is declining over time. And so even if there is softness of demand, you've explained it before where you have this kind of decline of demand or of supply, but demand kind of continues to trend a little bit lower in the short term because, hey, China's struggling as an economy. You know, maybe we're about to hit a recession and other things that are kind of in the short term. But as soon as that ticks up, we start seeing interest rate cuts next year, which is now being priced into the market. And, you know, we maybe have a soft landing and all of a sudden economy comes roaring back. Well, that's going to only really do one thing, right? Because that demand kind of trips that supply. And so long-term projections, what we're seeing And long-term being only right now, a few years is what most predictions are out kind of to. So it's, it's a thesis intact. It's important to understand what's going on, what's driving the short-term, but also understanding the long-term drivers as well.
And it's actually good news if you're buying oil, right?
Yes.
So if you're like we are, we're accumulating oil-producing assets right now. So this is welcome. You know, it means we get better deals and as we accumulate these assets for the long haul. So it's called buy time.
Buy time. Buy low, sell high. So awesome. All right, well, we appreciate you guys listening to the podcast. It was just a short one. I wanted to pop in, talk about what we're seeing. 'Cause we know we talk a lot about oil. We saw, you know, a pretty big drop here, but wanted to kind of give our insights and we'll link some of the articles here in the show notes that you can do some more research on. Appreciate you all listening. So tune in for the next episode of the Invest Like a Billionaire podcast. Feel free to share with a friend, leave a review. We always appreciate that. Thanks so much.
