These days, our memories are pathetic.
It seems like all it takes for us to forget recent events are a few nights of sleep.
This amnesia is at its worst in the financial markets. Investors try so hard to predict what’s going to happen next that they forget what just happened a few days or years ago.
As an example, oil has been in a bear market for around seven months now, and investors and other commentators are starting to make outrageous claims.
Here’s one from the business newsletter RenewEconomy…
“Saudi Arabia sees end of oil age on the horizon”
This was the title of a post from earlier this month, so I think it’s safe to say that many pundits have been lulled into amnesia about oil prices, their history, and why oil is down in recent months.
To declare the end of the oil age, which this post attempts to do, is reckless. I mean, at today’s prices — around $50 per barrel of WTI — oil is much more expensive than it was about 10 years ago, not to mention 30 or 40 years ago.
Plus, the U.S. consumes about 19 million barrels of oil each day.
As of 2010, the world at large consumed 87 million barrels of petroleum and liquid fuels each day, and according to the EIA, that number is only going to go up over time…
So even though our fragile investor memories may be distorted by doom, gloom, wishful thinking, and though the stock prices of once-mighty energy producers are declining ever closer to zero, remember that it’s only been a few months.
Things are going to get better for oil investors soon enough.
This is how I know…
Big Money Buys Low
While companies cut back on spending, some of the best investment firms have done their research and are looking to buy.
Honestly, some of these guys must crack up when they see headlines like the one I showed you earlier. They’re probably hysterical over new car sales data, too (SUV sales have soared in the U.S. as gasoline is cheaper at the pump).
One such firm is the Blackstone Group (NYSE: BX).
Blackstone is the biggest private equity company in the world, and with oil so low compared to May, June, and July 2014 numbers, Blackstone has decided to invest in oil… heavily.
On Monday, the company announced it had started a new fund to invest in the oil industry now that a multitude of companies are facing cash flow problems.
In all, the company will spend about $9 billion, money it will draw from various pension funds, university endowments, and sovereign wealth funds.
This $9 billion purse is made of two separate funds. One that was worth $4.5 billion closed on Monday, although, according to the company, there was still interest after the fund hit its target. The rest of the money will be drawn from the company’s own private equity fund.
David Foley, an executive within Blackstone, said: “If the assets are good someone will own them. You can fix a balance sheet; you can’t fix bad acreage.”
And oddly enough, this sentiment reflects what I’ve been saying since oil prices started to drop last fall: Some oil companies are better than others, and now, while oil is low, is an unprecedented buying opportunity.
Some of the best investments are ignored by most investors…
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Hold Out on Drillers; Buy This Instead
Because oil prices have fallen so hard and so fast, the oil industry has lost $1.6 trillion of its own money to invest in new reserves and infrastructure.
So Blackstone’s $9 billion investment, although large, may not take care of all that “missing money.”
But luckily, they aren’t the only ones buying now while everything is so cheap.
Apollo Investment Corp. (NASDAQ: AINV) is searching for buying opportunities, while debt-stricken companies are seeking to sell assets and rescue balance sheets.
Warburg Pincus, another private equity firm, recently closed an energy fund but is already looking to invest more. Add to that the money being spent by governments, wealth funds, and even oil majors like Shell and Exxon, and you’ll see that the smart money is buying now.
North Dakota lawmakers realize this and are spending, too. On Monday, it was reported that the state Senate voted to pass a $1.1 billion bill to fund infrastructure development and improvements for the state.
A lot will go to the state’s transportation department, but anything that’s used to improve the flow of oil — and oil workers — to and from the oil patch is important for reducing costs to drillers in the near term and boosting long-term yields.
The funding announcement came as North Dakota lawmakers were taking heat for the destructive train accidents that happened last week.
Another accident that struck in Casselton, North Dakota back in 2013 spurred a new wave of investment in what’s about to be the fastest-growing way to transport oil in the U.S.
Here’s how this one can help your portfolio.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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