Friday’s Oil Prices Hangover

Oil Prices

On Thursday, one of the writers that I admire most wrote a very critical piece about the situation in Ukraine… about himself. Matt Taibbi – who formerly worked as a journalist in Russia and has written extensively around financial crimes around the globe over the last decade – apologized to his audience for his failure to properly judge the possibilities of Vladimir Putin’s invasion of Ukraine. 

“Obviously, Putin’s invasion will have horrific consequences for years to come and massively destabilize the world,” Taibbi wrote. 

As Taibbi noted, he had spent so much time being critical of the leadership in the West that he ignored the cold-blooded nature of Putin. And for that, he apologized. 

As I reflected on his statement – I stand on the other side of this situation a little more clear-eyed and sober about the ramifications and the situation. After 18 months of COVID lockdowns and the politicization of everything – this is the first geopolitical crisis not related to COVID that we have encountered since January 2020 after Iran shot down a passenger jet. 

Time to Get Serious

I had a moment yesterday – in the afternoon – where I snapped back very hard. I remembered the severity of situations on the ground where I’ve traveled across South America, Asia, and the Middle East over the last 15 years covering finance and geopolitics. It’s serious business, and it requires a far more serious approach. 

On Thursday morning I watched a friend of mine on television report from Moscow on the state of protests in the city. Several protestors – who opposed this war – were being pulled away by police on air, and it’s unclear what awaits them. It’s easy to sit here in Southern Florida and not have to worry about any military threat knocking on the door and have your attention honed in constantly on the markets, numbers, dollars, and cents. I’m fortunate. 

I stress that it’s a pleasure to sit here and discuss ways to find profit and success in your future. I take it very seriously, and I’m thankful for it. However, I want to acknowledge that it’s another difficult reminder of the world we operate in. There’s no joy in these events. Now, let’s look at how we’ll address the ongoing situation. 

Speculating Future Oil Prices

Over the last two days, we’ve seen a lot of profit-taking from algorithms in the basic materials sector. The selling has been so extreme in the materials sector over the last 24 hours, that the only positive sector from a momentum standpoint is… energy. 

Even then, there has been ample selling on the oil front. Brent crude pulled back from $105 on Thursday, and WTI is now approaching the $90 level. Speculators took gains off the table. As I noted, the geopolitical premium has largely been stripped out of the equation for now. 

We’re now focusing on the underlying fundamentals on why future oil prices should continue to climb back to triple digits in the months ahead. Demand is outstripping supply, and there’s a very good reason why we should expect crude to climb. There remains a lack of investment capital in the exploration and production space. 

I’ve noted this trend for a few weeks. But OPEC recently reinforced this statement by stating that investment capital is very limited around the globe. Then… something really big happened. 

This week, Blackstone Group announced that it will no longer provide capital for oil drilling. This is a a stunning blow to the capital markets as producers will have fewer places to obtain financing. As I’ve noted on many occasions, the ESG (Environmental, Social, and Governance) movement took over board rooms across America and created staunch activist groups that aim to keep carbon emissions low. The result will be – naturally – higher energy prices. 

Crescent Energy Group

But it doesn’t solve the bigger problem that it will take decades for the United States to become carbon neutral. Carbon-based energy will be a critical part of the supply chains, only Americans can look forward to higher prices across the board. One exception to the rule is the emergence of Crescent Energy Group (CRGY). This company spun out of a deal between private equity firm KKR, and Contango Oil and Independence Energy. 

The energy company will likely become a major player in the North American energy production space in the years ahead. CRGY is already buying up assets should its cost of production reach new highs. Earlier this week, the company purchased Verdin Oil Company’s assets in Utah’s Uinta Basin for $815 million.

It’s managed by KKR’s Energy Real Assets team and led by David Rockecharlie, Head of KKR Energy Real Assets. He’s the company’s Chief Executive Officer and serves as a member of the Board of Directors. What’s lovely about this situation is that Wall Street has completely ignored this development. 

We’re talking about a company that will grow aggressively with deep pockets, an extremely experienced team, and an ability to take advantage of a dislocated market where capital is drying up. I think you’re looking at a rare opportunity to double or triple your money in the energy space on this stock – even with oil prices already sitting at eight-year highs. 

I’ll draft up a much deeper analysis of CRGY next week. Now, I have a golf cart ride scheduled with a four-year-old.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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