Oil to the Moon

[] Today Garrett explains the long-term bullish case for energy as rate hikes increase and inflation runs rampant. Let’s break down supply, demand, and supply. [View in browser]( [View in browser]( [] [Godesburg's Haven Investment Letter]( [] [Godesburg's Haven Investment Letter]( [] Oil To The Moon! [Garrett Pic] Market momentum is Red. Today’s selloff hasn’t changed anything. With the S&P 500 breaking under 3,600, things could really heat up next week. Cash remains your friend. Dear Investor, I’ve made it across Interstate 75 - Alligator Alley - after two weeks. It’s a flat drive, but no one obeys the speed limit. The slow lane moves at about 80 miles per hour. That’s some speed… The only thing moving in the fast lane today was the market’s reversal at 10 am. I’ve sat in cash since the negative move in momentum in mid-September. But I have started to look around for energy and other commodity trades as concerns around inflation accelerate. For the long term, I’m happy to start putting some money to work in the oil-and-gas sector and average down if there is a further pullback. I’ll explain why I’m ready… and then discuss one of my favorite plays in the energy space. Supply and Demand There are three primary issues around oil-and-gas that leave me bullish. First: Demand. Demand has cratered as the Federal Reserve raises interest rates. In fact, gasoline demand recently fell under the demand levels of the COVID crisis in the summer of 2020. This economy is built around oil… not the other way around. Even if this economy sputters, there is another part of the demand equation. Chinese demand has cratered not because of interest rates but because of government lockdowns. The nation has continued to keep millions locked in their homes due to COVID. Given China’s immense impact on the global demand side, I anticipate that eventually, the nation will recover and fuel a big move higher in demand from members of OPEC. That’s bullish for the longer term. Then there are the supply issues. Right now, the U.S. should be drilling oil out of the ground at a record pace. But given that we’re run by Yale lawyers and not energy experts, we’re keeping it in the ground. This is not a very friendly government to the proliferation of domestic oil supply. This all happens at a time when OPEC+ - the global cartel that largely sets prices - announced cuts to its production levels. Saudi Arabia and Russia will cut more than one million barrels in production per day combined. All of OPEC is set to cut production by a total of two million barrels… at a time when many members weren’t even making their quotas anyway. Our Yale lawyers can caterwaul all they want about OPEC and claim that they’ll pull more oil out of the Strategic Petroleum Reserve - but we only have 22 days left of U.S. demand left in the reserves. This is not only a national security problem, but it’s just awful public policy. With no plans to boost supply - and our continued decision to drain our emergency supplies, that will be bullish for oil in the longer term. Now it’s not just energy policy that is a problem for supply. The Federal Reserve is also a problem… for supply. Wait... What? I have listened to people argue that all the Federal Reserve can do by raising interest rates is crush aggregate demand. This is only half of the equation. When the Fed raises interest rates, it also increases the cost of capital for the production of anything. New oil exploration projects faced a cost of capital at 20% in 2021, according to Goldman Sachs. That is up from roughly 8% a year ago. The impact on Environmental, Social, and Governance (ESG) policies is absolutely hammering producers. Now rate hikes are playing a role too. With a higher cost of capital (or limited supply of money), the incentives to drill for new projects decline. That impacts supply in the mid-term. In the long-term, that’s where things get nasty. Last year, it was predicted that we had a global gap of $500 billion between the amount of money required to meet oil demand in 2025… and the amount of money available to the energy sector. That problem isn’t going away. Thanks, ESG. Playing Energy I recommend that you keep your focus on the Permian Basin. A recent economic survey said that the Texas energy industry is “quietly” making money at a time Washington is hostile to its interests. I like it that way. I’m very focused on ConocoPhillips (COP), which is profitable in the area even if oil fell - somehow - to $45 per barrel. In addition, the company benefits from two natural gas projects that will help fill the energy gap in Europe through 2023 or longer. I prefer to sell puts on COP down to the $106 level, and then accumulate if the stock pulls back any further. There is more to the story here, especially for oil. I’ll talk more about it next week. For now, I just need to sleep in my own bed. Enjoy your weekend, [Garrett signature] Garrett {NAME} [] Oil To The Moon! [Garrett Pic] Market momentum is Red. Today’s selloff hasn’t changed anything. With the S&P 500 breaking under 3,600, things could really heat up next week. Cash remains your friend. Dear Investor, I’ve made it across Interstate 75 - Alligator Alley - after two weeks. It’s a flat drive, but no one obeys the speed limit. The slow lane moves at about 80 miles per hour. That’s some speed… The only thing moving in the fast lane today was the market’s reversal at 10 am. I’ve sat in cash since the negative move in momentum in mid-September. But I have started to look around for energy and other commodity trades as concerns around inflation accelerate. For the long term, I’m happy to start putting some money to work in the oil-and-gas sector and average down if there is a further pullback. I’ll explain why I’m ready… and then discuss one of my favorite plays in the energy space. Supply and Demand There are three primary issues around oil-and-gas that leave me bullish. First: Demand. Demand has cratered as the Federal Reserve raises interest rates. In fact, gasoline demand recently fell under the demand levels of the COVID crisis in the summer of 2020. This economy is built around oil… not the other way around. Even if this economy sputters, there is another part of the demand equation. Chinese demand has cratered not because of interest rates but because of government lockdowns. The nation has continued to keep millions locked in their homes due to COVID. Given China’s immense impact on the global demand side, I anticipate that eventually, the nation will recover and fuel a big move higher in demand from members of OPEC. That’s bullish for the longer term. Then there are the supply issues. Right now, the U.S. should be drilling oil out of the ground at a record pace. But given that we’re run by Yale lawyers and not energy experts, we’re keeping it in the ground. This is not a very friendly government to the proliferation of domestic oil supply. This all happens at a time when OPEC+ - the global cartel that largely sets prices - announced cuts to its production levels. Saudi Arabia and Russia will cut more than one million barrels in production per day combined. All of OPEC is set to cut production by a total of two million barrels… at a time when many members weren’t even making their quotas anyway. Our Yale lawyers can caterwaul all they want about OPEC and claim that they’ll pull more oil out of the Strategic Petroleum Reserve - but we only have 22 days left of U.S. demand left in the reserves. This is not only a national security problem, but it’s just awful public policy. With no plans to boost supply - and our continued decision to drain our emergency supplies, that will be bullish for oil in the longer term. Now it’s not just energy policy that is a problem for supply. The Federal Reserve is also a problem… for supply. Wait... What? I have listened to people argue that all the Federal Reserve can do by raising interest rates is crush aggregate demand. This is only half of the equation. When the Fed raises interest rates, it also increases the cost of capital for the production of anything. New oil exploration projects faced a cost of capital at 20% in 2021, according to Goldman Sachs. That is up from roughly 8% a year ago. The impact on Environmental, Social, and Governance (ESG) policies is absolutely hammering producers. Now rate hikes are playing a role too. With a higher cost of capital (or limited supply of money), the incentives to drill for new projects decline. That impacts supply in the mid-term. In the long-term, that’s where things get nasty. Last year, it was predicted that we had a global gap of $500 billion between the amount of money required to meet oil demand in 2025… and the amount of money available to the energy sector. That problem isn’t going away. Thanks, ESG. Playing Energy I recommend that you keep your focus on the Permian Basin. A recent economic survey said that the Texas energy industry is “quietly” making money at a time Washington is hostile to its interests. I like it that way. I’m very focused on ConocoPhillips (COP), which is profitable in the area even if oil fell - somehow - to $45 per barrel. In addition, the company benefits from two natural gas projects that will help fill the energy gap in Europe through 2023 or longer. I prefer to sell puts on COP down to the $106 level, and then accumulate if the stock pulls back any further. There is more to the story here, especially for oil. I’ll talk more about it next week. For now, I just need to sleep in my own bed. Enjoy your weekend, [Garrett signature] Garrett {NAME} [] © 2022 Godesburg Financial Publishing, Inc. DISCLAIMER: COMMUNICATIONS FROM GODESBURG FINANCIAL PUBLISHING (GFP) ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY – NOT INVESTMENT ADVICE: GFP and all the services it offers are for educational and informational purposes only and should NOT be understood to be securities-related offers or solicitations. None of GFP’s communications should be considered or used as personalized investment advice. GFP recommends that you speak with a licensed professional before making any investment decision. RESULTS PRESENTED ARE NOT NECCESSARILY TYPICAL OR VERIFIED: GFP communications may include information regarding the historical trading performance of gurus in their services (all verified by a third party), as well as testimonials of non-employees depicting profitable investments and trades that are believed to be true based on the representations of the persons providing the testimonial of their own free will. Please be aware that the claims regarding investing or trading results of non-employees are not tracked by GFP nor can they be verified. As always, past performance is not necessarily indicative of future results. Therefore, results presented in this email should NOT be considered TYPICAL. Actual results can and will vary based on everything from experience, ability, risk mitigation practices, and market volatility... to the amount of money exposed in the investment or trade. Investing and trading are speculative and carry serious risk. You may lose some, all - or possibly more - than your original investment or trade. GODESBURG FINANCIAL PUBLISHING IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER: GFP, including its owners and employees, are NOT registered as securities broker-dealers, brokers, or any sort of registered investment advisors with the U.S. Securities and Exchange Commission, any state securities regulatory authorities, or any self-regulatory organizations. GODESBURG FINANCIAL PUBLISHING EMPLOYEES MAY HOLD SECURITIES DISCUSSED: If a writer holds any securities in a communication, it will be disclosed along with the information on the potential investment or trade. HIR, its owners or employees, have not been - or ever will be - paid by the issuer of a security mentioned in our services or communications. GFP, its owners and employees are paid entirely or in part from commissions based on sales of their services to subscribers. For more information please visit [our disclaimer page here](. [] Sent to: {EMAIL} [UNSUBSCRIBE]( [] © 2022 Godesburg Financial Publishing, Inc. DISCLAIMER: COMMUNICATIONS FROM GODESBURG FINANCIAL PUBLISHING (GFP) ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY – NOT INVESTMENT ADVICE: GFP and all the services it offers are for educational and informational purposes only and should NOT be understood to be securities-related offers or solicitations. None of GFP’s communications should be considered or used as personalized investment advice. GFP recommends that you speak with a licensed professional before making any investment decision. RESULTS PRESENTED ARE NOT NECCESSARILY TYPICAL OR VERIFIED: GFP communications may include information regarding the historical trading performance of gurus in their services (all verified by a third party), as well as testimonials of non-employees depicting profitable investments and trades that are believed to be true based on the representations of the persons providing the testimonial of their own free will. Please be aware that the claims regarding investing or trading results of non-employees are not tracked by GFP nor can they be verified. As always, past performance is not necessarily indicative of future results. Therefore, results presented in this email should NOT be considered TYPICAL. Actual results can and will vary based on everything from experience, ability, risk mitigation practices, and market volatility... to the amount of money exposed in the investment or trade. Investing and trading are speculative and carry serious risk. You may lose some, all - or possibly more - than your original investment or trade. GODESBURG FINANCIAL PUBLISHING IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER: GFP, including its owners and employees, are NOT registered as securities broker-dealers, brokers, or any sort of registered investment advisors with the U.S. Securities and Exchange Commission, any state securities regulatory authorities, or any self-regulatory organizations. GODESBURG FINANCIAL PUBLISHING EMPLOYEES MAY HOLD SECURITIES DISCUSSED: If a writer holds any securities in a communication, it will be disclosed along with the information on the potential investment or trade. HIR, its owners or employees, have not been - or ever will be - paid by the issuer of a security mentioned in our services or communications. GFP, its owners and employees are paid entirely or in part from commissions based on sales of their services to subscribers. For more information please visit [our disclaimer page here](. [] Sent to: {EMAIL} [UNSUBSCRIBE](