Love Affair or Marriage: That Is the Question

Love Affair or Marriage: That Is the Question

Oh, Mr Market, how you love to fool us all. In 2020 you drove oil, somehow, to a place it had never been — less than zero.

Today, it’s riding high enough to make a Saudi blush with all the money they can make and squander.

But whither investment? Bloomberg says that big oil majors are not investing it into future production.

Here’s a snippet…

Chevron is perhaps the best example of a company turning away from the punch bowl.

The California-based oil giant generated the most free cash flow in its 142-year history during the third quarter but intends to keep capital spending 20 per cent below pre-Covid levels next year while increasing share buybacks.

Its 2022 capital budget will come in at the low end of its $US15 billion to $US17 billion range, according to chief financial officer Pierre Breber, some 60 per cent below 2014 levels.

It must be no fun working in oil these days, except perhaps for the pay cheque.

You might as well be peddling tobacco to minors as far as most are concerned, even if they use your product every day.

Why would you invest as a company, and delay gratification for the future benefit of others that carry nothing but scorn for you on their lips?

Why not pay out your earnings, live the high life off the dividends while the going is good and damn the rest of it?

That is, at least, one interpretation.

How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.

Another, less emotive one, might be that the oil majors don’t see the same shortage of oil as the market is pricing in right now.

It might be a bit of both.

Yes, dear reader, the world of finance is never clear cut or dried as some would have us believe.

Today, Mr Market says he sees a shortage of oil and a cold winter bearing down on the Northern Hemisphere.

Who knows if the cold winds will blow as much as we all think today? I’ve been to the east coast of the US in winter, in the faded industrial blot called Baltimore.

I’ve trudged through the snow and sheltered inside my coat after a juicy steak in a heated and cosy restaurant.

Those winds are bitter, as they were in Chicago when I cruised down the river that runs through the CBD.

A fleeting thought to smoke a cigarette occurred to me one night in the hotel. Bugger going outside for that…for the cold if nothing else!

But perhaps those icy claws are a little less this winter.

Perhaps Mr Market reassesses his thoughts — as the weatherman sends his data in — that there may be less demand for oil, coal, and natural gas than he thought back in September and October of 2021

The mainstream press tells us China is slowing down too, and they are the biggest importer of oil.

Perhaps Mr Market — ever capricious — begins to fret more about a Chinaman’s daily driving habits than he does a shivering Yankee in New York City.

Perhaps, then, the question is not whether you want to try and time Mr Market’s moods and fancies, but a deeper, more engaging romance.

It hints at a deeper, more committed relationship, one that can flower only through time and long companionship.

That is…

Do you want to be invested in the energy market come what may?

Now, that begs all sort of difficult and complicated questions and thoughts, in the same way a marriage proposal might.

Not for the flighty and quick escapades of an affair or a fling, but a respectable, less alluring marriage.

Does oil float your boat? You could, after all, marry US big tech, or Aussie lithium miners, or whatever flutters your heart.

What we can say about any oil courtship is that, as a love interest, your beau has been ignored, nay nearly vilified, in a public forum that decried her as devoid of attraction.

Perhaps, though, some turn of phrase, a comely ankle and a beauty spot are beginning to show. She will not pressure your wallet as some other potential suitors.

Speculator and economist John Maynard Keynes once compared the share market to a beauty contest.

The trick, he said, was to ignore what you thought was beautiful and go with what you think the other judges will find beautiful.

Can oil shares ever be the belle of the ball again?

Only time can tell, but right now Mr Market is beginning to suggest he thinks so and is prepared to act on it.

Regards,

Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia

PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.