Buy Conventional Oil

Much of my musings to you and my Energy Investor readers over the last few months have focused on one all-important topic…

Oil prices.

By now, you know oil has undergone a dramatic fall as Saudi Arabia cut the price of crude for the U.S. during a time of high volume and lower imports.

As a result, oil prices, energy and other stocks, and the minds of financial pundits have all gone haywire.

Many claim these low prices will put an end to fracking in the U.S. and, with it, the oil boom that has fueled so much activity in our economy and the bank accounts of millions.

Some have claimed that the recent price drop will last for some time — months or perhaps years — although there’s no real way for them to know that.

But what very few have talked about is the fact that price manipulation by Saudi Arabia may have dire consequences for the rest of OPEC…

Playing Hard Ball

Thanks to the tight oil boom in North America, the United States now imports 35% less oil today than it did back in 2005.

The problem is that for shale oil to remain economically viable, oil prices must be high, as the cost to frac a single well can reach $12 million in some places.

The price varies for different companies, but most sources say operations in shale oil fields are still economically viable around $70 per barrel, maybe a bit higher for bigger, more bloated companies like Exxon.

With oil just under $80, these drillers are cutting it close…

What is known is that Saudi Arabia can still turn a profit with oil prices at $30 per barrel.

But Venezuela, a founding member of OPEC, whose 298 billion barrels in proved oil reserves are the most in the world, stands to lose big time.

You see, like the United States, Venezuela needs oil prices to be high in order to produce much of its crude and still have enough money to support its socialist-style government.

In the Orinoco Belt, where much of the country’s reserves are located, production is very capital intensive and is only feasible at $100 per barrel, if not more.

For Venezuela, every $1 drop in the price of oil correlates to about $700 million in lost revenue for the year.

So as you can imagine — and as you may have heard in the news (although it barely got any coverage) — Venezuela has been in dire straits amid the current price wars.

Venezuela Reels

Already plagued with debts to bond investors and a deeply troubled socialist government, Venezuela now suffers from depleted revenue from oil operations.

There have been riots in the streets, long lines at grocery stores, where fights sometimes break out over food, and a massive devaluation of the country’s currency.

Basic items most people take for granted in the U.S. and Europe, like shampoo and diapers, are scarce, too.

Truly, the effects of OPEC’s price war and an already crippling debt threaten to dismantle the South American nation’s oil production and perhaps even its economy.

That’s why your humble editor believes President Nicolas Maduro will plead with Saudi Arabia to return prices to normal.

It worked for his predecessor Hugo Chavez in 2000, when he lobbied the rest of OPEC to cut oil supplies and drive up prices.

For the next nine years, prices went through the roof, topping out above $140 a barrel.

Whether the Saudis follow suit this time remains to be seen, but when a founding OPEC member struggles, the Kingdom could take notice.

Only this time, the Saudis have to contend with U.S. production, a major drawdown on its market share. And you can bet if the U.S. starts exporting oil, the Saudis will cut prices further.

Any deeper cuts could hurt investments in service companies throughout North America and Venezuela to boot.

Finding Conventional Oil

The way to play these low prices is to find companies that drill conventionally.

Now, I’m not saying you should go sell off your entire portfolio — on the contrary, these low prices offer cheap buys in unconventional oil plays — but conventional oil producers can be an excellent hedge.

I mean, think about it — if you found a company that only pays $25 or $30 a barrel to produce oil but still sells it at $80, you’re going to turn a serious profit.

So rather than focus your entire energy portfolio on these oil services companies, I would suggest a little diversification with a conventional driller.

There are still plenty in the United States, and there are even more abroad.

My colleague Christian DeHaemer is currently developing a report on one of the best opportunities for conventional oil abroad that I’ve ever seen.

He should have it for you in a few weeks.

In the meantime, check out this driller. Its price has dropped below a dollar, making it a must-buy stock once again.

Until next time,

Keith Kohl

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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.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

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