According to the Energy Information Administration, the US is more than self-sufficient when it comes to energy.  For the first time in a very long time, production of energy (all sources) exceeded consumption in 2019.

US Energy Prod and Cons 2020-04-28

What we do know is that much of the production side of the equation has come from shale oil and gas producers who are now having to shut down production or worse (bankrupt) – they weren’t even profitable at much higher oil prices.  Perhaps the conspiracy theory that the Saudis and Russians didn’t disagree about cuts,  but really agreed to simply put the marginal suppliers out of business for both economic and political reasons has legs.

US Production by source 2020-04-28From the Financial Times:

“American production reached almost 13m barrels at the end of 2019 — the third year of increases that allowed the US, on its own, to meet the total additional annual oil needs of an expanding global economy. Since 2008, American oil production has more than doubled.”

There’s no shortage of companies engaging in price wars (or other tactics) in order to take out the competition. In order to control pricing, it’s necessary to control supply. Perhaps OPEC+ wants the rest the world to understand who’s really in charge…and it’s working.  It isn’t just the producers who are hurting, but the infrastructure that supports the industry is collapsing.

“If I go out of business or shut wells it’s not just me,” says the head of one small oil producer, “it’s the five guys who service the wells, truck the oil, lease their trucks — and the community that depends on their tax dollars.”

And there’s also the railroads, pipelines and refineries.  The flip-side is that once supply and pricing get back under control the shares of the surviving companies will rocket.  For those who can wait a couple of years, these stocks should be bought.

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About the Author

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

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