The earth smelled of wet rain and decaying leaves, and the rain fell in a soft mist. And on this bucolic Sunday morning in central Maryland, a thought unbidden came into my mind.
It went something like this: “Hey, Chris, with the earth soft and damp, I bet those weeds would be easy to pull out between the cracks of your slate sidewalk.”
And so it began, an entire Sunday shot to hell. There were multiple trips to the hardware store, purchases of lithium-ion blowers and cutters and slicers… With this army of mechanized destruction, I led an attack on the shrubbery.
There is a certain peace to be had after you slice your extension cord with your bush trimmer. It’s a point between dejection and hope where one drinks coffee on the veranda and ponders the mysteries of life… or, if you are like me, of oil production.
Right now, WTI crude is at $52.18, and Brent trades for $58.05. Gold is at $1,307 per ounce.
Last week President Trump elected not to recertify the Iran nuclear deal and hit Iranian leaders such as the Revolutionary Guard with a list of new sanctions.
The sanctions won’t hurt Iran’s current oil production levels, but will limit it in the long term, as new technology, spare parts, or hard-needed foreign investment will go wanting.
Iran exports 2.3 million barrels a day. It is unknown if China and India will go along with another round of U.S. sanctions and cut imports. I doubt it.
Oil Spike
In response to these events, Iranian Major General Mohammad Ali Jafari said: “If the scattered news about the stupidity of the U.S. government regarding the IRGC as a terrorist group is correct, the Guards will also consider the American military all over the world, especially the Middle East, as equal to Daesh.”
A military confrontation with Iran could shut down major oil shipping lanes and send the price of crude sky high.
It has happened before many times.
During the Yom Kippur War, oil prices jumped 400%. The Iran revolution pushed oil prices from $14 to $35. The 1990 Gulf War in Iraq saw prices double. The 2011 Arab Spring saw oil prices jump from $60 to $120.
Other bullish cases for oil include a more aggressive OPEC, which is talking about further cuts in production, and the global inventory levels, which have fallen from 318 million barrels to 170 million barrels since the start of the year.
Small oil companies tend to do better when the price of oil spikes. For example, RSP Permian, Inc. (NYSE: RSPP) went from $20 to $45 when the price of oil climbed from $33 to $48 in 2016.
Sanchez Energy Corp. (NYSE: SN) went from $4 to $15 — a 275% gain. And Marathon Oil Corporation (NYSE: MRO) went from $7 to $17.50.
And that’s just the gains from the slow and steady oil price rise we saw last year. If we get a military-driven oil price spike like we’ve seen in the past, then small North American oil companies will do even better.
And I’ve found the perfect one. Like I wrote last week in “Fracking Inventor Goes to Mexico,” it’s a nice speculation on Mexico’s newly deregulated oil market.
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As you can see by this chart, the Permian and Eagle Ford shale oil and gas formations have cousins down south.
Furthermore, the guy who put all the pieces of horizontal drilling and fracking together — Nicholas Steinsberger, who many people say invented modern fracking for Mitchell Energy — has a $0.20 company that is trying to do it again in the Tampico Basin.
This company won’t stay at $0.20 for long. Find out more here.
But either way, my yard looks good.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
