Oil Price Shock Ahead, Demand To Outpace Industry Forecasts: Josh Young

In the aftermath of a volatile year for oil prices, Josh Young breaks down the impending price shock being driven by unprecedented demand. Discover the pivotal role geopolitical tensions, supply and demand imbalances, and socioeconomic developments play in this unfolding chapter of the global energy market.

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00:00 Introduction
00:54 Year-in-Review of Energy in 2023
03:04 Catalysts for Oil & Gas in 2024
06:12 The IEA is Consistently Wrong
09:43 Could a Recession Kill Oil Demand?
17:03 How Could the Energy Thesis Fail?
23:03 Evaluating Oil & Gas Stocks
30:07 Energy and Geopolitics
37:04 Impact of Attacks in the Red Sea
44:55 Canadian Government Emissions Caps

#oilprice #oil #fossilfuels

Hello and welcome to commodity culture where our goal is to make you a better investor in the commodity space my name is Jesse day before we dive in standard disclaimer nothing here is investment advice do your own due diligence and today’s episode is brought to you by moneymetals.com the most trusted online

Bullan dealer and depository in the United States use money medals for purchasing selling or storing physical gold and silver hit the link in the description below to learn more and use coupon on code Jesse day to get a $10 discount on your first purchase today’s guest is the founder and chief

Investment officer at buys and interests a firm that specializes in opportunistic investments in oil and gas equities we’re going to be discussing the energy markets get his outlook for oil and gas in 2024 and more it’s Josh Young great to have you back on the show thanks for

Having me back well I want to start with a year in review of the oil and gas markets in 2023 what if anything surprised you what went according to your expectations and did anything change about your views when it comes to investing in the space over the course

Of the year so I came into the year um sort of bearish natural gas because production was surging relative to consumption and LNG export facilities were going to be coming on uh only starting in late 2024 and uh bullish on oil because uh the long-term under Supply in oil uh

Seem to be catching up relative to uh the restart of demand for um uh transportation that had been sort of paused during covid and then also due to sort of the the natural uh growth in oil demand globally that’s been around 1% a year over the last 40 years or so and so

Um the biggest surprise was the uh relaxation of sanctions against Iran where we saw year-over-year about 800,000 barrels a day of uh additional production coming out of Iran and additional exports uh from Iran to to various markets and um the lack of enforcement of sanctions on Iran really

I think was um was sort of shocking relative to what’s happened from a GE geopolitical perspective uh this year and um it’s it’s surprising there’s still not being enforced even as Iranian funded and trained uh houthi uh forces are shooting at International uh container ships going through um or

Going into the Red Sea or out of the Red Sea um right now so so that I think was sort of the biggest surprise um which was negative for uh oil prices um and then secondarily uh us Shale grew a little more than I expected and um well

Productivity didn’t decline by quite as much as I expected which was also negative uh for the oil price yeah I want to talk about the situation in the Red Sea a little bit later and it’s implications for the market but at the moment I’d like to look ahead to

2024 what are the main catalysts in your view that are driving the energy investment thesis as we move into the new year us Shale grew more than I expected um partly because of the surge in drilling rigs and in completion activ ity um as well as the Improvement in

Well productivity um in places that were sort of surprising like in the bachan Shale in North Dakota uh where there was more success on infill Wells and Redevelopment of Old Fields um than I expected and then the industry consensus expected what I expect to happen is with

The US rig count down by about 160 rigs year-over-year I expect the lag effect to start to kick in which is that you’d expect that um production would slow from a growth perspective and then maybe even start to fall um after maybe growing a little more in the first part

Of 2024 so that should be uh pretty positive it looks like expectations are for substantial oil production growth in the US uh for 24 and so I think I think the consensus is wrong and sort of reset too high and then I think the other thing that’s going to be really

Interesting is um the the OPEC assessment for demand uh oil demand growth uh for 2023 uh was pretty accurate and the Ia assessment was totally wrong they were they were way too low for 23 for 24 uh OPEC has us growing Demand by over two million

Barrels a day and the Ia has Global demand growing by about 800 to 900,000 barrels a day and I think the Ia is totally wrong and you know absent a significant economic downturn we’re going to see substantial o demand growth so I think the disappointment and Supply

From Shale and again I acknowledge I was wrong for 2023 I think I’ve identified where that happened and um sort of what caused that as well as sort of what’s changed to slow that and turn it around and then um you know I think just demand is growing way faster than consensus is

Expecting and I don’t know why people are still using IA estimates they’re wrong every year looking back other than for 2020 when the world shut down from governments uh blocking travel and forcing people to stay inside so those are I think the two sort of biggest

Factors for the oil market and I think I think there’s a potential for oil prices to shock to the upside to the extent that OPAC follows through on their stated cuts and doesn’t bring more oil back onto the market and to the extent that Iran uh Iran just doesn’t appear to

Be capable of growing their production by another 800,000 barrels a day in 2024 so with with without that incremental production they they may sustain production they may their production may fall sanctions may be enforced they may not uh but it seems like that sort of

Surprise is sort of off the table uh for 2024 you took the words right out of my mouth when it comes to the iea um why are people still looking at that data obviously they’ve made so many revisions it’s getting ridiculous at this point um does the statistics they release do they

Actually in influence the market in any way and why are Market participants even paying attention to them at this point so you know this is actually this gets to one of the reasons why I chose to start spending a little more time on um you know doing media like like this

Interview um you know when you look at where people are getting information about oil and gas and broader energy markets um the the sources of information are have been compromised so you have the eia and other government agencies um which are advocating for alternative energy and um we possible

Mandating that people stop using fossil fuels uh stop using clean burning natural gas in their homes and forcing them into sort of riskier uh electric stoves and heat pumps and so on um and then you have I the Ia and other sort of NOS um which which are similar and

They’re also advocating for this sort of energy transition um rather than advocating for the growth of energy supplies they’re advocating for certain kinds of energy supplies which is a pretty big deviation of their um original sort of reason for formation as well as their original sort of mission

Statement and then you have media organizations which I just I don’t understand why they’re not obligated to disclose this but many of the media organizations and other sort of purveyors of this sort of information are running Consulting divisions and ESG rating systems and diversity training programs and so on and so you have

Almost these like I mean in some cases you have fullon hit pieces on specific companies that just it’s almost like it’s payto playay where they’re hitting them because they’re paying someone else to do their ESG ratings um so you know I think I think the question of why are

People relying on this stuff I don’t know I mean why like we we sort of shop around for the media these days that we like or agree with or aligns with our politics which is unfortunate and and I think there was sort of more of a good faith effort of media historically to

Try to present multiple sides and to try to present accurate information and unfortunately I think that’s less the case and so I think what you see is anything that’s sort of negative about the oil Market or anything that’s positive for energy transition is Amplified to the nth degree um and

Anything that’s positive and and you see this about sort of the General stock market and the economy too doomsayers broadly broadly disseminated easy to build a big following um you I saw a a podcast host talking about how they get on tenen as many views when they have

Someone that’s bullish on the economy and bullish on the stock market and so uh you know similar sort of thing like the Ia is very bearish on oil and negative about oil demand and so on and that’s a view that’s in line with the the businesses of these media companies

And it’s in line with the political and ideological agenda of government and non non-governmental organizations and so these things just get picked up and repeated um it’s sort of like a a bad game of like telephone uh which leaves people misinformed and and shocked when they end up totally wrong well I know

You believe that it’s just a matter of time before oil prices reach new all-time highs people on the other side say that there’s a deep recession coming maybe it’s going to be a deflationary depression maybe it’s going to be a new Great Recession there’s a lot of pretty hyperbolic language being thrown around

But I’m wondering what your thoughts are there could such a scenario derail a demand for oil and are there any is there anything else do you ever think about the bare case is there anything else that could derail your thesis in the long term yeah I mean I’m a value

Investor so I actually sort of start with I have this picture of Buffett behind me but um and the the bio of him but I I really I come at things maybe more from AER perspective I everything and I try to figure out like what’s terrible about this thing and you know I

Think investment bankers and sales Traders they hate calling me because I’m just like no no no and I’ll find like the problems with their stuff and you know it’s not it’s not that I’m a no guy it’s just that that’s my starting point is hey let’s like kill this idea and if

I can’t kill it or if the the the degree to which I have to go The Logical contortions I need to go to kill it um are too ridiculous then I get really interested and so um you start you start making money by not losing money which

Is sort of a buffet as well as sort of other like just a a sort of risk-taking um uh reasonable uh Mantra and so yeah I mean I’m always trying to find sort of the best most compelling bear cases the problem with the recession I mean there’s many problems with the recession

Forecast first of all again these things are very alluring there’s sort of this siren Call for doomsaying and there’s sort of a joke I think I think there’s something to maybe about how you know when work weeks went from 80 hours to 60 hours to 40 hours to 30 something hours

These days it just freed out people to have more time and they spend that time brooding over eminent doom and so you know not everyone but people interested in the economy it see seems like there’s sort of an overlap between between those folks so look like is it possible that

We have a terrible economic depression in 2024 absolutely it is possible and in that case oil prices will go down for some period of time I think what we’ve seen is that central banks as well as World governments have shown us what they do when they’re worried about a

Deep depression which is they print lots of money and it’s not just the act of printing money right cre money creation isn’t just the thing it’s also they distribute it and they distribute it a lot to their sort of political cronies and donors and whatever but recently

They figured out they can actually send it to poor people and if they send it to poor people they spend it and if they spend it then that’s inflationary and also like very quickly restarts the economy when you think about the incredible Dynamic of like the worst economic policy in history of forcing

Most people to stay at home not the you know the it was really a classist sort of horrible policy but you know you had uh you know it was racist as well was terrible like you had people doing manual jobs that were forced to go to work and you had

The people like with the laptop jobs uh staying at home um horrible policy right like maybe one of the worst economic policies ever up there with sort of like maist cultural revolution whatever but they sent a bunch of poor people money and um sending poor people money

Kickstarted the economy so by May of 2020 you were in an economic boom at the same time you had people like getting on CNBC crying talking about how terrible it was going to be as they were buying stocks right um so so who knows right like no one no one really knows what’s

Going to happen what we know is that policy makers have discovered um or rediscovered sort of one of the tricks for a real sugar rush and so yeah could oil prices fall sure but the solution um is right there it’s sort of a combination of what they would do what

They did in the financial crisis which is bail out their Rich buddies and protect Banks and financial institutions and claim that their friends are too big to fail um and then um send a whole bunch of money to people which they did a little in 2007 2008 but what they I

Mean they did it in size in 2020 and so you know if that’s the case then you almost want as an oil investor again like you’d experience a lot of volatility and that’s you know we named bison we we we face into the storm like the Bison we understand that there’s

Going to be a lot of volatility and we have a longer term view if there is a downturn we think it’s extremely likely I don’t know if there will be a downturn if there is one it’s extremely likely there will be inordinate money printing even greater than we saw during Co which

Sort of a manufactured downturn um and I think even with all the inflation concerns and all this other stuff you’ll see that all go away and you’ll just see crazy money Printing and that would be incredibly bullish for oil as well as other Commodities and even on a on an

Inflation adjusted basis it could be wildly bullish particularly for the producers which have some leverage and and the services companies which have some leverage to uh that sort of price movement they would they would benefit potentially disproportionately uh versus the commodity itself so so yes I’m

Worried about it yes there’s a real risk um no it’s not very likely and the reality is that people are terrible at predicting these things um even people that like do papers on how it’s hard to predict end up predicting doom and being wrong over and over again this is a deep

Irony there’s some famous sort of TV personalities that I won’t name that that do this over and over again it’s shocking right they had literally of books about how it’s impossible to predict these things and then they tell you how terrible they are and there’s pictures of them with like you know

Plastic uh cas over their faces with like two face masks on which apparently is like horrible for your respiratory system um so you know everyone wants to do it I won’t do it but if it happens I’m not worried because you know it’ll be really painful for a little bit and

Then I mean Co was one of the best things that happened to my investment um you know setup right I was able to redeploy into stuff and I did you know it was terrible very stressful during 2020 and it was amazing you know from a three-year return perspective it was

Extraordinary and so you know from that perspective no I’m not worried yeah it might happen yeah it would really really be painful and uncomfortable and stressful and I’d get some more gray hair maybe lose some more hair whatever but um it would be extremely lucrative and it’s almost sort of the bull case

For oil from The Medium to longterm as you want that so that way they print and um the one other important thing from a supply perspective sorry to to ramble to to answer this is that you would have the rig count drop even more than you already had it drop which would crush

The forward sort of Supply picture right as you’re juicing the forward demand picture by you know preparing to send uh people that will actually use the money money they’ll go buy stuff and drive places and use gasoline and Diesel and mgls and all that other stuff so um you

Know is that really healthy economically no is this the right way to run economies no it’s a terrible idea it’s a terrible way to do things but it is I mean you sort of have to there’s the theory and then there’s the reality and the reality is that it would be

Massively bullish for oil and gas stocks over the medium term are there any other you know bearish scenarios that you’ve run through in your head uh what what would it take to send the long-term thesis into Jeopardy would that be um discoveries of massive new deposits would that be advancements in technology

That that allow for a greater extraction um what what scenarios have you run through um that could prove bearish for the long term yeah so so there there have been there have been many and and you know the nice thing about the oil beer Theses as you see them every week

On the news they come up with a different narrative for why oil prices are down or why they think they shouldn’t be going up as they go up um so so that Parts uh you don’t have to be that creative you can just like open a newspaper or like watch Financial

Television or look on Twitter or something um so uh you know various uh you know there’s there’s the technology risk both from EV adoption which has slowed radically as basically the people that were open to trying it have tried them to for the most part um the EV

Adoption rate the growth rate of EVS um has has slowed rapidly um and there are many folks that are actually starting to switch back as they um have experienced sort of the cost issues as well as the uh logistical issues which I guess were somewhat predictable but sometimes we

Have to make mistakes in order to on our own in order to sort of fix them and so um you know that was a really big concern frankly you know a Chinese EV growth uh production growth was Triple digits last year and that was actually a really positive thing from an oil demand

Perspective this year uh that growth rate fell substantially it was low double digits from triple digits so if it had continued at triple digits that would have been really scary it did not um so that was that was really um a big bear case and and that’s been mitigated

As well as sort of evidence of huge numbers of EVS on uh abandoned lots and you know these those have even been picked up in media Outlets that normally are are pretty uh religiously um Pro alternative energy and electric vehicles and so that’s sort of how you know it’s

True is when the xyy you know media slash financial information Consulting businesses uh share in their in their news uh stories that um so that was a big one um yeah like big discoveries could have an impact but the reality is even if you found a giant oil field um

It would take years to get it into development and ramp production um there have been some sort of bearish uh developments in Shale right so bachan there there was this sort of improvement in production um they’ve been finding sort of more oil in the peran than people thought um they they’ll keep

Finding it and the technology will keep improving um I think I think there’s some lwh hanging fruit that was found uh sort of in the restart after covid so as the rig count started to R back up in 2021 there were a few technology improvements as well as some things that

People tried in terms of different zones and so on that worked um and I’m I’m I actually think those things sort of decelerate and so the question is are there more discoveries are there more of these Innovations and so on and there there will be some but there actually

Seems like the pace of that’s decreasing and not increasing but it’s something I’m watching really closely and I think it’s a really good question and then um you know there could be other sort of Shield fields that people sort of figure out and dramatically improve productivity on and economics on but

Even when you look at places like Argentina where the vakam mara is fantastic um it just there are so many challenges there’s water challenges and takeaway and even though mle was just elected and he seems really promising he doesn’t have control of the uh the equivalent of their Congress so he

Doesn’t really have the ability to legislate he’s doing executive orders but unfortunately without uh their sort of Congress or Parliament um there there was another president that came into Argentina I think in 2015 he was President for a few years he had similar sorts of ideas and he just wasn’t able

To implement them effectively so there the the political uh issues and other logistical issues globally that have slowed or prevented Shale uh seem to be continuing um so yeah those are sort of I think the big uh the big questions and the reality is that you sort of need to

Have much higher oil prices I think to start solving some of those problems and actually creating the bare thesis and um I think we just saw this with uranium where one of the sort of most uh loud vociferous uranium Bulls just got bearish on uranium equities and people

Got really upset so I feel like there’s going to be a moment and I don’t I don’t know how I feel about that exactly of minor exposure right tail exposure just in case it goes up a lot or whatever but um you know I think there’s going to be

A moment where I look at stuff and say hey this is scary and I want out and again I don’t think we’re anywhere close to that but I think I think there’s a decent chance that we reset to quite high price levels versus where we were

At least on a nominal basis and we get to a level where people are feeling very comfortable sort of like the 2010 to 2014 period or the early 1980s period and um I think that’s the that’s the thing that’s scariest to me is people feeling comfortable with high prices

Because I think we can construct a scenario where there would be another multi-year downturn for Oil we’re just far from it and we’re really far from the equity valuations that we’ need which will work well for me because hey when Equity valuations are high when they’ve started low and prices are high

When they’ve started low uh that’s a recipe for fantastic success I believe you know there’s no guarantees and you know I’m not offering anything through this but um you know I think I think it could work out really well so those are great questions I really spend a lot of

Time actually trying to to figure those things out and I just keep coming back to most of those scenarios playing out through much higher prices over a multi-year period Well I would like to discuss how you evaluate oil and gas companies because for the average investor it can be a pretty intimidating

Part of the market to you know wrap their heads around um so if a new company crosses your desk you get a phone call you you said you like to look at the reasons why not before you look at the reasons why to invest so what

What are the red flags that you look for what what is it you look for um for the bare thesis to begin with and then if a company intrigues you and and you’re willing to dive deeper what are the main things you’re looking for before you make your final investment decision so

Um I’m gonna quote uh juel greenblat who ran one of the highest performing hedge funds he didn’t run it for that long I think it was a decade or so but when you look at these charts of the sort of best performance versus the longest period of

Time he sort of on the shorter period of time but like one of the best track records of anyone essentially ever and um he in one of his books he said investing in stocks without knowing what you’re doing is like running through a dynamite factory with a lit match uh you

Might not blow up but you’re still an idiot so um generally speaking Equity investing is hard most stock Pickers lose money or they materially underperform uh the broader Market or their sort of sector that they’re benchmarked against uh most neutral fund managers underperform most hedge funds underperform and individual investors

Tend to actually underperform even more than that unfortunately so generally speaking it’s a losers game and so you know we’ve done well at bison sort of despite that I think because we’re focused on sort of these small relatively liquid off- theun equities in a sector that’s very out of favor so I

Think those are sort of the a good starting point but I can’t emphasize enough the risk and un certainty and the probability of loss associated with all of these things in any equity in any sort of stock picking in any sort of endeavor and I’d ignore all the nonsense

That you hear people put on social media or claim or whatever the the statistics are overwhelming you can see them also from brokerages where they they tell you sort of what their accounts do and so on without naming names obviously and you know the data is just overwhelming it’s

A really it’s a really tough business and it’s a really tough Endeavor and generally you just shouldn’t do it so don’t try this at home and frankly probably don’t try this professionally either so um so you get a call you say hey here’s XYZ stock so first of all

Like where where is it an operation um most of the world is um presents especially for oil and gas unacceptably high risks um you may have seen various folks taking Victory Laps on individual oil and gas companies or other companies in in unfriendly jurisdictions recently and it just it brings to mind the

Thousand one days in the life of a Thanksgiving turkey it sounds wonderful and folks will brag about it and occasionally they’ll claim they took trading profits and again there’s just overwhelming data that this stuff is just nonsense and individuals may have done well on individual stocks but

Generally like what happens is you you do well on something you get greedy you buy more of it because people treat stocks as gifing Goods which means they get more attracted to them as price goes up and then um as you feel most comfortable uh the local dictator or the

Local Parliament or whatever decides that this is theirs not yours and that’s it um and this is the history of most oil and gas production in the world um since uh since Inception so um where is it and then sort of what’s the geopolitical situation and and that sort

Of eliminates from my perspective most uh listed oil and gas producers uh most interested in the US and Canada and then a few International jurisdictions that have reasonable rule of law or something in their favor where it’s extremely unlikely there’s going to be a nationalization for some long period of

Time for for various issues or sort of expropriation right like what we saw in Europe where technically the countries didn’t ex they didn’t nationalize but if you put a 99% or something windfall profits tax on production you’ve essentially stolen it so Ireland UK I mean some of these places like I think I

Think people should be aware of that too just as a side not just for oil and gas if they can do it to oil and gas they can do it to any of your other Investments and they’re basically just like it’s almost as bad as investing in

Like the USSR or various other you know historical regimes that had no respect for private property that’s it’s a it’s a red flag it tells you this is not a place that’s friendly to Capital and they’re picking on oil and gas right now to pick on other stuff so anyway

Jurisdiction matters U management matters in many cases there’s people that have done very poorly historically um betting on people that did poorly historically doing well now it doesn’t it doesn’t always fail but the odds are not in your favor so generally finding people that have been successful um the

Nice thing about public equities is you cannot just find people who have been successful um you don’t have to like back them as they’re starting a next thing you can find them while they’re in the next thing achieving success in that thing and one of the the better bets

I’ve made is finding people that are doing really well that have done really well betting on them continuing to do really well on the thing that they are doing that they’ve done well doing so it’s like I know it sounds like there’s a lot of doings in there but it’s really

Just you know betting on continued Excellence by great people doing a thing that they are extremely skilled at with a team that they are very capable of leading with a balance sheet that’s survival with um you know a visible Runway to be able to execute on that so

That’s my that’s the best um and then there’s sort of deviations from that and then getting that at a giant discount to what would cost to reassemble it um using New Capital essentially replacement cost is um very important to me and there’s many metrics and there’s

As you can sort of tell from how I’m describing this um every investment that that uh we make at bison is sort of its own sort of idiosyncratic thing there’s there’s their own investment thesis there’s their own set of uh things that would drive success or failure for that

Investment and you know all of it’s oriented towards aversion of loss in addition to uh trying to find potential significant upside and um every one of them looks different so it’s really hard to say hey we’re looking for this kind of thing or that kind of thing I’m

Looking for stuff where I’m very unlikely to lose money where there’s potential to earn a 10x or whatever and the reality is you don’t on most of them but starting with really significant potential upside really significant mitigated downside over the medium uh to long term and then with occasional

Companies where there’s a potential let’s say 100x or something something with the potential of fully losing capital and just sizing those very small um I think that’s I don’t know if that’s helpful but that’s sort of the the high level process that we use to to select positions yeah absolutely helpful and

I’m wondering how much do you think investors in energy need to pay attention to geopolitical and political events is it mostly just noise in your view when it comes to the long-term thesis how much of an impact do those events really have on the market in the long term should investors even maybe

Block that out and and and just focus on evaluating individual companies if that’s what they’re doing or um playing the sector through an ETF something like that and maybe just forget about all this news about different things happening in the Middle East and and Wars breaking out Etc so I think value

Can be its own Catalyst to some extent so if you can find a business that’s doing well even at a depressed environment that’s well-run with a strong survival balance sheet I think that can sort of that can sort of win the battle for you to some extent um but

I think I think there’s something that’s sort of weird that’s gone on with oil for the last few decades where generally when people have bet um to the upside on oil related geopolitical risk they’ve lost so what’s happened is there’s been this sort of pavlovian response both in

Terms of the financial response as well as the sort of narrative response and so it gets to the point where if there’s a event that actually has a reasonably high probability of affecting Global oil supplies to the point where it actually could materially put oil out of balance under supplied sending prices

Potentially to much higher levels for some period of time people will acknowledge it and then bet against it and then laugh about it like within days before it’s even sort of resolved and and the reality is for any of these things you don’t really know how it’s

Going to get resolved so when uh OB was attacked uh you know Saudi Arabia was hit by a number of missiles a few years ago I think it was 2019 like sort of just just before covid um and there was a million and a half barrels a day of

Production uh processing knocked out and some of the fields were hit with some minor damage um there was a risk that actually Saudi wouldn’t be able to refill their inventories and wouldn’t be able to supply what they had promised to the market and it turns out that they

Were able to but you know there was let’s say a 20% chance that they wouldn’t have been able to bring that back online as quickly that some of their reserves wouldn’t have their Reserve Fields wouldn’t have turned on quite as well as they did and so I think

There’s sort of this false sense of security it’s sort of like most people don’t short stocks and we’re not shorting stocks at bising we don’t want to lose our clients money and you know it’s very risky and sort of a different longer term Endeavor uh to short versus just finding undervalued Securities with

Margins of safety and you know various attributes that should allow them to outperform as a part of a portfolio um but you know people have been trading not to short stocks because for the last essentially 40 years stocks Dave what was it Dave P uh stocks

Only go up sort of thing so there’s this like weird idea and obviously it’s not true but but over a multi-decade period stocks have mostly just gone up oil prices have mostly just gone down relative to other prices and oil geopolitical risk mostly hasn’t played out that doesn’t mean that it won’t and

It makes me inclined to actually be pretty bullish on it because and to think that it might have a bigger impact than people think because if everyone’s if the pavlovian response if the financial win has been just sell it no matter what every time it comes up then

It seems much more likely that it’s going to be mispriced and that there will be this sort of false sense of security which makes me much more interested in it and you know I’ve talked about it publicly about sort of different events events and it’s sort of

Funny because you know the the I mean there was this horrible massacre in October and my take on that was you know obviously the massacre was horrible the political response there was going to be a war which might or might not affect oil supplies and there was this

Downtrend that happened as oil Futures had been sort of overbought uh speculative net uh interest was super high and so that was already starting to wind down and so that my take on at the time was hey I think think this this wind down is going to continue I don’t

Know how long it’ll take weeks months days not sure but you know Spike on this news the wind down probably continues but then there is some risk that this escalates and depending on sort of how it plays out it could actually have a material effect on the price of oil and

So that sort of played out and now we’re seeing the some of the followon effects of what’s happening there right the houthis are attacking uh ships in the Red Sea or entering or exiting the Red Sea um saying that they want to try to get Israel to stop um the the war in

Gaza um so that’s obviously directly connected but it it took a little while for that to to play out and I think people forget that you know the oil embargo in 1973 it didn’t happen immediately after the war it took I think it was a few weeks before they

Sort of started and then think it took a couple months before it really sort of took effect so I think these things can sort of lag but the bigger thing is just everyone’s bet against it for so long anyone that’s bet on oil geopolitical risk moving price up has lost money and

That’s an amazing setup I mean munish babra here I’ll say one more thing on this munish bab talked about Japanese stocks where he he did so well on it and he said I went to one of his meetings he said that um where where he was putting

His position on the time he said uh the market in Japan had done so terribly that grandparents would tell their grandchildren that um they should never invest in stocks because it had been so many like it had been three decades since Japanese stocks had gone up they

Were just they it was ter they told their kids they told their kids it was just it was it was uh known that you don’t buy stocks and that was an amazing setup and it was I mean he did so well on that he’s compounded money I think

25% annually since he started his fund 15 or 20 years ago and you know a big part of that now he’s done well on his India stocks and turkey stocks he did great on his Japanese bets and that’s the sort of setup I think that sets you

Up very nicely to the upside is this sort of everyone knows everyone thinks you’re an idiot or will laugh at you or whatever for saying you like this thing especially the people that are native to it and that are most involved that I I love that and um you know again I’m not

I’m not directly betting on oil I’m buying undervalued oil and gas equities but I thought I thought uh your listeners might appreciate that um that story and sort of how it turned out which was I mean I think some of his things went off like 10x or something

Over a couple of years yeah I’m I’m in Japan right now and to this day retail investments in the market is incredibly low most people think it’s still think it’s very dangerous to to do any sort of investing so um the that that is a very interesting story um now you you did

Touch on the the shipping firms or you touched on the attacks in the Red Sea route there’s four major shipping firms that have halted their route after ho the attacks against commercial vessels in the region you know we just talked about how geopolitical events when when

You’re trying to bet on them when it comes to the oil price it generally doesn’t work out but could this have an impact on the transportation of oil potentially LNG and if so what are the implications for the energy Market I mean maybe this is an oil tanker play I

I don’t know what are your thoughts there so actually it looks like right now the way this is playing out is that container ships are getting attacked and tankers have been fine for the most part and so there was one I think chemical tanker that got hit but oil and gas and

LG have been fine um it looks like this might be sort of deliberate you know again understanding that Iran backs the houthis like they back Hamas financially and with training and they’ve actually I think had folks in Iran for training as well as sending their folks uh to local

I mean there it’s there I’ve seen some theories from geopolitical risk analysts that there actually were irgc officers that were helping the houthis actually send some shoot some of these ballistic missiles apparently is very technically complex to hit a moving uh cargo ship uh with a with a ballistic

Missile is a new new thing um so um I think I think the the most likely impact to the oil Market is actually that the container ships there’s going to be more of them in use so more containerships running means more bunker Fuel and Diesel and other sort of oil product

Consumption and then they’re going to be going longer routes so down through the Cape of New Hope um through under South Africa um rather than um rather than through the Suz Canal um so that seems to actually the most likely impact in the short term and um the calculations

Are if about half the container ships go go the long way or if about half the cargo goes the Long Way um that could affect oil Demand by a little over 500,000 barrels a day and that might actually be sort of sandbagged a little that was I worked with a couple of U

Retired uh physical product traders to figure that out one of them sort of came up with a really specific slightly higher estimate other one sort of had a similar estimate sort of look through it was like okay hey this is you know good enough I think it makes sense to put

This out as sort of a a scenario a possible sort of outcome I think that’s the sort of biggest potential oil Market implication of this right now um I think the the thing to watch out for which is incrementally positive it’s an extra it sort of makes up for most of the

Incremental exports from Iran which had a really big price impact um but I think the the thing to watch out for from a oil supply perspective is that Iran has called for a export ban to Israel and they don’t Supply Israel directly but the way they did this in the 70s twice

Was they basically just stopped shipping oil to 40 or whatever Western countries so Israel and what they considered Israel’s allies which was like the EU and various other um various other countries and so that that would be to the extent that you just have a bunch of

Container ships going the long way and um you know the US has sent some ships uh to the area and is saying that we’re going to sort of intervene but we we’ll see in terms of the potential impact I don’t think there’s political will to invade Yemen and I think it might be

Hard to stop these missiles without actually invading similar to you know Israel trying to stop hamas’s rockets at their cities um they only seem to have actually been successful in stopping them once they sent ground troops even with extensive bombing there were still many rockets that were getting launched

And launching rockets at an individual sort of ship Target allows for much more mobility and I think it’d be extremely difficult for the US to actually stop and again it’s not my area of expertise just sort of reading a bunch of different risk analysts uh estimates and

And their assessments um it sounds like it would be difficult for the us to stop and for this Armada to stop um the cargo ships from being hit so it seems like that may actually continue for some time which would have a demand impact but the bigger thing is if it doesn’t affect

Things and it just sort of we just start living with this like longer trade route um then the next step might be to try to affect oil supplies and there is this obvious step and the obvious step um you know hasn’t gotten a lot of traction so

Far but you know life was pretty good in the Middle East in the 70s with radically higher oil prices after the Embargo so even though they sold fewer barrels they got a really high price and after seeing the US drop 160 rigs after seeing Canada drop a few dozen rigs um

After seeing sort of the global offshore boom slow um and you know seeing some projects get delayed uh o you know some of these OPEC countries might feel comfortable doing this and maybe they do some sort of back room deal where you know Iran gets to say we’re doing this

And Saudi Arabia denies it but then everyone cuts a little and you know again I’m not saying that’s very likely it’s just it is possible and to the extent that this continues the situation with who continues to the extent that the risk analysts are right and they

Can’t stop uh the houthis from um blowing up container ships and container ships just continue to sort of go around it it would be a logical Next Step with there there’s some chance of that which obviously would have a dramatically uh it have a dramatic impact on oil

Supplies and oil price and it’s not out of the realm of possibility when you look at just the statements from various OPAC officials and OPAC countries they’re very frustrated they see the Futures Market positioning they think that the price is being manipulated they’ve said it repeatedly they see very

Different economic figures than the Ia and they seem angry and and in some cases they’re actually friends with Israel so like Saudi Arabia like they were on the path towards peace with Israel before October 7th and the from what I read again from these same analysts like they’re actually still

Sort of on that path um but it doesn’t mean there’s not a chance that you see some sort of oil export disruption again will it affect Israel not really in the same way as it didn’t really affect Israel in the 70s but hey whatever excuse you need to get three times the

Price for your product while selling 20% less right so um not the best long-term plan for oil could cause demand destruction longer term could have all kinds of other impacts but there’s not a zero% chance of this and so I think it’s worth considering and again like I’m not

Going in betting on this but hey it’s some really nice interesting right tail optionality and I think the more people are sure that nothing like this will happen the more likely it is that something like this happens and when it happens the more likely it is that it

Has a substantial sticky price impact well you mentioned that you look at Canada as a stable jurisdiction when it comes to the energy space I’m wondering what your thoughts are on the liberal government there announcing they will be placing uh they’ll be capping emissions from oil and gas companies this is what

CBC said the liberal government’s framework to cap emissions from the oil and gas sector proposes to cap 2030 emissions at 35 to 38% below 2019 levels in order to reach the government’s goal of reducing emissions in the sector to Net Zero by 2050 should investors in the

Canadian Oil and Gas space be worried so everywhere has its risks there’s nowhere that’s perfect right I wasn’t I wasn’t implying that Canada was risk-free just that you know relatively speaking you were less likely to have your stuff actually stolen outright and there’s enough sort of property rights and a

Long enough history and enough alignment from a provincial level and enough power at the provincial level to sort of protect you in ways that maybe you’re not as protected um in XYZ South American or African or Asian country right I mean just to or frankly Ireland

I mean the the the tax they did just extraordinary and I can’t say it enough like watch out random tech company random whatever watch out right like they once you do it once you’re like hey this extra Revenue plus like going after an industry we don’t like um you know

Terrifying so Canada has not done that they have very strong property rights um you’re not likely to have your stuff nationalized the mission stuff is interesting I mean I don’t think Canada is serious about the environment I think they’re serious about sort of exerting colonial rule from the East Coast on the

Western provinces and I think I think the Western provinces have sort of caught on and there is a framework for this which is what Quebec did which was they threatened to leave and in exchange for not leaving the Federation essentially of Canada they got all kinds of concessions and basically like people

In Alberta work hard and pay taxes and the money gets sent to Quebec because Quebec essentially among other things threatened to leave so I think people they know it they always thought hey this isn’t the right thing to do uh if you look at some of the statements from

The provincial uh leader the premier as well as um some of the statements from the premier of saskatchwan I mean honestly I sort of want to like we should like Annex them count that as count them as natural born citizens and I’d love to have the premier of

Saskatchewan be the president of the United States and me really just sort of like down guy social liberal fiscal conservative like states rights uh you know just sort of what he he he’ capture this the C the center like 70% of the US and whatever um so unfortunately that’s

Not obviously a real you know there’s a lot lot of issues with trying to do that but um I think I think Canada is sort ort of moving actually from a a risk perspective safer not not more risky because as the provinces start to respond to these more and more Extreme

Rules from the East Coast perspective or sorry from that are sourced from the East Coast um and and are used to sort of make certain uh Liberal Party voters and NDP voters feel good or whatever um I think it actually reduces the likelihood of them being implemented um

And and you can actually see I think there was a there was a carbon tax that Alberta the premier has actually instructed to not enforce and then I think also in Saskatchewan the premier has instructed their uh their government to not enforce it so I mean that’s a

That’s a huge step and that’s I think a very positive step from a geopolitical risk perspective um for investors in Canadian Oil and Gas so there’s still risk the TMX got delayed again the rates are going to be higher so it’s going to cost you a little more to get your oil

Out local basis for gas is terrible right now it’s hard to get pipe out it’s taking forever to build the West Coast l&g facility these are all things but they’re sort of known they’re sort of priced into the equities um and have been for a while and so if anything I

Actually think people are sort of overreacting to the downside when they should be getting I think a little more comfortable and excited and you know this it’s Canada they’re not going to end up well not definitely but they’re very unlikely to end up in sort of a

Civil war any sort of outright whatever I think the most likely scenario by far is a sort of Quebec is scenario where just in exchange for not leaving and not taking more dramatic actions you end up with a much more reasonable um policy scenario and I think a lot of the

Premieres in Canada are supportive of that even if the federal government there isn’t and so and there’s elections coming up and so if you have a bunch of the premieres in favor of sort of a rational approach towards managing resources in western Canada um I think I

Think you just end up with that as the ultimate sort of policy approach and it’s just going to be noisy and scary in the meantime so long answer short answer basically no not very worried if anything I think it’s actually not not so bad and maybe getting better but

Nothing is risk-free and there’s always always concerns in any jurisdiction well Josh thank you so much for joining us today it’s been an incredible conversation I learned a ton uh before I you go could you tell us about buys and interest and if there’s anywhere else you’d like to direct people online feel

Free to do that as well sure yeah so we invest in publicly traded oil and gas producers and services companies and other companies sort of in the uh Oil and Gas and energy value chain um we launched in 2015 um you know we’ve we’ve done pretty

Well sort of despite the the really sort of tough um oil downturn for most of that time and um you can find us at uh bison interest .c or um bison interest on Twitter great well I’ll put links to both of those in the description for

People who want to check that out thank you once again Josh for joining us and sharing your knowledge with the audience thank you and thank you for joining us today as a reminder this episode is brought to you by moneymetals.com use coupon code Jesse day to get a $10

Discount on your first purchase link is in the description below and I’ll see you guys in the next episode commodity culture is a series on Commodities and natural resources if you would like to see more be sure to subscribe and hit the Bell notification so you’re always up to date with the latest

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