Investing

Oil is Going to $50 A Barrel, and Investors Can Line Up Now To Profit (XOM, CVX, AMLP)

Austin Smith

Published: November 20, 2024 8:48 am

Key Points:

• The U.S. is generating unheard-of levels of oil, which would cause prices to drop since OPEC would find it difficult to maintain.
• Two factors causing downward pressure on oil prices could be weak demand from China and possible legislative changes allowing greater American drilling.
• Consider investing in integrated firms like Exxon (NYSE: XOM) and Chevron (NYSE: CVX), or MLPs like Alerian AMLP for steady income.
• Also: Are you ahead, or behind on retirement? Take this quiz to see for yourself. (sponsored)

Watch the Video

Transcript:

[00:00:00] Doug: We’ve got a very interesting situation with oil right now.

[00:00:04] Lee: Oh, do we ever?

[00:00:05] Doug: See if you go back and look at oil, around the sort of start of the Russian invasion of Ukraine. Oil briefly topped 100. It’s after a bunch of gyrations. It’s now probably 68, right? So if you look at the future of oil, where the price is going, here’s my theory.

[00:00:27] Doug: The first one is, that the U S produced more oil than any country. In any month in history, the United States has capacity to produce oil and natural gas is unprecedented. Forget OPEC plus, forget everybody else. The supply from the United States is massive. OPEC plus cannot afford to counter what the United States is doing, which is basically, U S producers are making all this money.

[00:01:03] Doug: And the OPEC people are making okay money, but they’re constraining their supply. Right. At some point they’re going to say to themselves, I don’t make it. The United States guys are making all the money because I’m not selling enough. So suddenly to me, you get a race to the bottom, towards the bottom.

[00:01:24] Doug: People in essence, start to produce and sell based on the fact that they want long term market share. So theory number one. Is oil is going to go down for that reason. Theory number two is President Trump. Is going to let people drill in Yellowstone National Park right next to Old Faithful. Okay, you go there in a year.

[00:01:48] Doug: There’s going to be a Derek right next to Old Faithful and Old Faithful won’t work anymore. sorry, we, we hit that line.

[00:01:58] Lee: Yeah.

[00:02:00] Doug: The last one is China is weak. China is the largest importer of crude in the world. Yep. I’ve got a big drop in demand. I’ve got a big increase, in potentially in supply because the new president is going to let people drill everywhere.

[00:02:20] Doug: And then you’ve got what I think is a brewing price war because OPEC does not want to see its sovereign funds not getting their fair share because the United States is Pumping like mad and Exxon’s making all the money.

[00:02:35] Lee: Yeah. Yeah. I think you’re right on a lot of accountsI don’t think you’re right that there’ll be an oil derrick or a fracking derrick next to old faithful. But I do think you’re right about one thing.

[00:02:46] Lee: There will be a lot more production on government lands and the government owns most of the united states And so I think that’s entirely possible. I think what could be something that could help these big You Integrated giants like Exxon and Chevron and Conoco and the likes is at one point.

[00:03:06] Lee: the president or somebody would, can really point a finger is gonna say to Europe, don’t buy any more LNG or natural gas from Russia. Don’t do it. Don’t do it. And I think that will be something that can help at least buffer the, drop in price. And I think you’re correct. I mean, I think oil could fall back into the fifties because you know they’re gonna hold the line at one point because there’s a point where they don’t make any money.

[00:03:31] Lee: And because it’s a very capital intensive business and all of that.

[00:03:35] Doug: I don’t disagree with you, but the cost, Saudi, Saudi Arabia’s cost is 10. Now, not everybody’s cost is 10, but that’s their cost. So they have some ways to go. I agree with you that some of the U. S. companies, particularly the frackers, they can’t see it go a lot lower or they start to say.

[00:03:59] Doug: I’m not going to keep these crews on and things like that, but oil could go to the fifties very easily. I think so. That is very good for the U. S. economy. So if you’re, if you have what I call the U. S. economy trade, which is the major stock markets. us sovereign debt. if you’re investing based on the strength of the United States, the fact that you will have lower oil prices means lower gas prices, low petrochemical prices, or deal diesel prices.

[00:04:35] Doug: It means a lot lower jet fuel prices. net, it’s a very positive thing for America. So if you’re in the stock or bond market and you have what I call the American trade, It’s a good time to trade that.

[00:04:49] Lee: Yeah. And you’re really right about all of your points. And one thing for our viewers to remember is that if you’d like to be long energy, consider the MLPs because they just move stuff around or store stuff or have a pipeline for stuff.

[00:05:06] Lee: They don’t have to dig and all of their, equipment and all of their infrastructure is in place. For the most part, it has to be maintained. But most of those, big, MLPs like enterprise and Enbridge and all of them, Enbridge is a pipeline company, but I mean, all of those, they have fixed costs in place and the contracts they sign are not, six months, they’re long contract.

[00:05:31] Lee: So one way to stay in the game and get paid a big dividend. Is to look at the energy MLPs and the smart way for our viewers to play it if they’d like to be involved is skip buying ’em individually because then you get the dreaded K one every year. And if you ever had to put a K one on your tax return, it is the proverbial, pain in the ass.

[00:05:52] Lee: It really is. So look at the AMLP, that’s the symbol for the Alerian MLP fund. It has 11 or 12 of the top. Um, MLPs in it. You don’t get a K one, you get a 10 99 and it pays, I think an 8% quarterly dividend.

[00:06:13] Doug: Yeah. It’s someplace around there. It’s just in, yeah. Look, some of these pay, north of 10.

[00:06:19] Lee: Oh, absolutely.

[00:06:20] Lee: But again, if you buy one individually. Deal with the dreaded K one. and, your taxes are due early April. Well, sometimes they come like early April. So if you, want to look at them, look at the Alerian AMLP, that’s a good thought and, maybe keep a close eye on, and if oil does go into the fifties, which I think you’re right, could then maybe look at the big integrated, it’s like Exxon and Chevron because Chevron’s dividend in the fifties would be five and a half percent.

[00:06:50] Doug: Yeah.