November 30, 2021

The latest price drop on oil and gas has caused quite a stir in the energy markets. There are still a couple of standards that we have to follow. Men should listen to their wives if they know what is good for them, and follow the money. 

Follow the money will work in solving crimes, investing, and looking at politicians’ real interests. In this case, let’s go over the current market this week. 

Wall Street watches several matrices. One is the equity funds and they have pulled in more cash this year than the previous 20 years. 

Americans Cash in the bank has never grown this fast before - ENB
Source: Federal Reserve, Bloomberg

The cash inflow to equities also is at an all-time high of more than the previous 19 years. This matters to oil and gas as people are ready to spend and are tired of being locked down. The world is not going to stand idle with little to no proof the variants will make a difference. 

Bank of America cash flow equities exceeds the combined inflow of past 19 years - ENB

Source: Bank of America

Let’s also take a look at the world demand side of oil and gas. There are several sides to these matrices. The lockdown on air travel does have a short-term effect on jet fuel. The world’s huge protests are gaining in size and frequency. People are feeling trapped and are ready to spend and get out regardless of lockdowns. 

Population Control accross the world in lockdown protests -ENB
COVID-19 DISORDER TRACKER

Take a look at the Twitter post from Brisbane, AU. 

 

So with the initial reports from medical professionals around the world that the new variant is not as serious as the world leaders are starting to set the panic for more lockdowns. 

Let us don’t forget several other pricing matrices that were talked about before from our King Operating Research team.  Those are the Saudi Arabia budget surplus announcements where we called $125 to $135 oil next year, and lack of investments in dilling. 

Today Irina Slav from Oilprice.com just announced that a new report from JP Morgan analysts is predicting $125 oil next year and $150 in 2023. 

“OPEC+ is not immune to the impacts of underinvestment…. We estimate ‘true’ OPEC spare capacity in 2022 will be about 2 million barrels per day (43%) below consensus estimates of 4.8 million,” the team, led by Christyan Malek, wrote, as quoted by TheStreet.

“While we believe a three-month pause to 400,000 barrel-per-day monthly increments is needed during the first half of 2022 to balance the market (and potentially a cut pending impact of new COVID variants), the group will struggle to deliver monthly growth of more than 250,000 barrels per day once reinstated,” the analysts also said.

According to a CNN report, this rise in the price of crude could push U.S. gasoline prices to over $5.

“They don’t have the barrels. It’s a mirage,” Malek, head of JP Morgan’s EMEA oil and gas research, told the news outlet. “Look back at history. When we’re in a scenario where the market goes, ‘Oh, s***, we don’t have spare capacity,’ that’s where you see overshoots,” he also said.

So this market pullback is a major short-term reaction. Very much like the toy cars that you pull back to wind the spring and let go. Just imagine we are pulling back the car, and the spring shoots ahead. When the prices spike, they will really spike. It’s not if; it is when.

Buckle up; we are heading into interesting times in the energy, oil, and gas markets.

Jay R. Young, CEO, King Operating

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One thought on “What is your number one rule of investing? Is it follow the money and not the latest Covid Variant?
  • This is a fantastic analysis of the equity/oil & gas market, Jay. These are certainly unprecedented times, and I believe that the next BOOM in which we are infantile in stage, will result in the greatest ROI capital since the first boom way back in the day. Those of us who are keeping our hand in the game will likely be huge winners thanks to the undercapitalization and resulting supply/demand in balance caused by others around the globe flee the brown energy table, some purely for optics.

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