Oil pops as the perfect storm in energy sends prices soaring into the coming winter...
 

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And... we’re back to where we began, more or less. After a rollercoaster ride of a week, stocks ended up a smidge. 

Despite a 630 point shellacking Friday, the Dow Jones Industrial Average ended the week 2% higher. The S&P 500, which slid 3% Friday, closed the week up 1.5%. And the Nasdaq, down almost 4% on Friday, nevertheless eked out a 0.8% gain for the week. 

Here’s Bonner Private Research’s macro analyst, Dan Denning, with more...
 

There was a lot of noise this week without much change, except in the oil market...

Crude oil was up over 5% Friday and over 17% for the week. Investment Director Tom Dyson mentioned on Wednesday OPEC’s decision to cut production by two million barrels per day. OPEC wants to put a floor under the oil price at $90. Europe and the United States want to cap energy prices to contain inflation and the domestic political problems it causes..

It’s shaping up to be an interesting battle. It’s too bad America’s energy policy makers have their heads up their wind turbines. Instead of calling for price caps and punitive tax measures against oil and gas companies, they should be granting more leases for oil and gas drilling. The Baker Hughes US rig count fell by three this week. 

When the Biden Administration took over, there were 638 million barrels of oil in the Strategic Petroleum Reserve. Now there are 416 million barrels–a 40-year low and a massive drawdown in a strategic asset for the purpose of bringing down gas prices before the mid-term elections in November. We are governed by clowns and thieves.

But politics and policy aside, these trends actually support our Trade of the Decade... 

Readers will recall Bill’s Trade of the Decade as essentially long conventional, old school energy. The thinking, in part, is that a mean reversion is long overdue. As Doug Casey reminded us when we spoke to him on the Fatal Conceits podcast a couple of weeks ago, “If you go back to 1980 when oil was the big thing, 30% of the value of the S&P was oil stocks and oil related stocks. As of last year, it was only 3%. It had dropped 90%. Now it's gone up to maybe 5% now, but they're still really cheap.” (You can listen to that whole conversation right here.) 

Moreover, capital expenditure in the oil and gas sector spent most of the past decade in free fall as producers looked out across the regulatory horizon and saw nothing but strangulating red tape. Why invest in exploration and development when your government is doing everything it can to kneecap your industry? And yet, it’s not as if 7.75 billion human beings suddenly stopped needing and using energy… or that the great, green transition has proven a reliable substitute for fossil fuels.

Since Bill, Dan and Tom announced their trade back in January of 2021, it’s up over 110%. But it’s still early days and the BPR team reckon there’s plenty left to run on this one. Here’s Dan again...

The whole point of a ten-year Trade – based on previous Trades Bill Bonner recommended – is to make a simple one-way bet on a trend and then forget about it. If it keeps you up at night, you either have too much money in the position or you might need the money sooner than you think.

Little did we know the catastrophe Bill expected would materialize with much higher energy prices in 2022 AND a war in Europe. Combine this with a decade of wishful thinking energy policy (ESG, Net Zero, the Energy Transition) and this coming winter is shaping up to be a doozy.

Speaking of war in Europe and the knock on effects of massive disruption to the global energy supply chain – including the sabotage of Russia’s Nord Stream pipelines in the Baltic Sea last week – we caught up with energy and resource investor, geopolitical expert and all round man of letters, Byron King, to get his insights a few days ago.

As usual, Byron shared a wealth of knowledge over the course of an unhurried hour or so. If you haven’t already listened to that conversation, you can access it here, gratis (look out for the transcript in the next day or so)...

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