Oil Pushes Past $80... With No End in Sight

Multiyear highs in this key commodity... Oil pushes past $80 – with no end in sight... A two-sided 'oil shortage'... Higher prices at the pump and inflation protection in the portfolio...

A barrel of oil now costs more than $80...

Over the past few days, the price of West Texas Intermediate ("WTI") crude oil has risen to a level last seen seven years ago.

The price of the key U.S. oil benchmark is around $81, as I (Corey McLaughlin) write. Similarly, Brent crude oil – the international benchmark – is at multiyear highs as well... It's around $83 per barrel today.

In short, we've come a long way since that wacky negative $37 per barrel low in April 2020... That's when futures traders were worried about being on the hook for oil drums showing up at their office desks.

Back then, pipelines and storage facilities were backed up all over the country as the economy ground to a halt due to the COVID-19 pandemic.

But the thing is... oil prices are now up 300% since they normalized to around $20 per barrel in May 2020.

And as we've explained before – and will again in today's Digest – oil prices aren't done climbing yet... The rally is far from over, in fact.

What's more, while higher oil prices will cut into many folks' everyday budgets, they also provide an often overlooked opportunity for inflation protection – if you know where to look.

For roughly a year, we've argued that higher oil prices would come in the months and years ahead...

As far back as the end of 2020, our editors were identifying the beaten-down oil and gas sector as a source of value...

In November 2020, our flagship Stansberry's Investment Advisory team recommended shares of an oil and gas royalty company. That position is up 137% in less than a year. Our team then recommended another company with a similar business model in May 2021.

Also in November 2020, Dr. Steve Sjuggerud suggested a "bad to less bad" way to profit in the oil patch in his True Wealth newsletter. That position is up 61%.

Then, in the February 16 Digest, True Wealth analyst Chris Igou said to look for higher oil prices... He suggested the Energy Select Sector SPDR Fund (XLE) as a "simple way to make that bet" at the time. Since that Digest, XLE is up about 27% – more than doubling the roughly 11% return of the benchmark S&P 500 Index over the same span.

We could go on with more examples. But we'll pick up the meat of this story more recently...

In the August 26 Digest, we made the case for higher oil prices ahead yet again. This wasn't a popular thought at the time (if it ever is)...

Back then, the price of WTI had slipped for one straight week. At one point, it was down to less than $62 per barrel – a drop of about 17% from its previous high a month earlier.

But we argued at the time – citing the work of our colleague Dr. David "Doc" Eifrig – that this was just a temporary dip. We said that this steep drop in oil prices didn't mean electric cars were about to take over America's highways and roads.

It's likely just the opposite, in fact...

If the gas-to-electric trend does happen, it will likely take roughly 15 years to play out. In other words, your favorite gas station isn't going out of business or changing over to all electric pumps tomorrow...

We told Digest readers to expect prices to go higher at the gas pump as demand continued to grow while America inched its way out of this pandemic... and supply remained depressed lower than pre-pandemic levels.

Plus, with the global supply-chain issues ongoing, there isn't a lot of margin for error.

In the spirit of last Thursday's Digest in which we suggested ordering Christmas gifts now...

If little Johnny doesn't get the new toy he asked Santa for, that's probably worth a few tears and a disappointing Christmas morning for him that he might talk about for a few days or months.

But if there's an "oil shortage," an inflationary storm will likely follow that could make all the toys more expensive. Think of all the things that oil still touches... and the things that will rise in price if oil's price keeps going higher (which it is).

First, we're simply not at the point yet where there are enough alternative energy sources to power the American and global economy.

Oil accounts for around one-third of energy consumption globally. That's more than coal (27%) and gas (24%). And it's more than three times as much as hydropower, wind, and solar combined (9.7%).

Plus, a lot of people don't realize that oil is a big ingredient in things like plastic. As much as the anti-plastic straw crowd put a dent in Starbucks' (SBUX) offerings, plastic is ever-present today.

I bet something plastic is in front of you right now – perhaps your computer.

The point is... we're a long way from kicking our oil habit. It won't happen overnight.

At the same time, the OPEC oil cartel wants higher prices...

Higher oil prices are good for the Organization of the Petroleum Exporting Countries and its allies, which are together known as OPEC+. This group includes Saudi Arabia, Iran, Iraq, Russia, and Mexico.

The cartel has decided not to boost supply even as prices have risen. And here in the U.S., the government isn't taking any emergency measures yet to boost supply either...

The most recent rise to more than $80 per barrel comes after the U.S. Department of Energy indicated on Friday that it won't tap the country's Strategic Petroleum Reserve ("SPR") to help alleviate supply issues – at least not yet.

Stansberry NewsWire analyst Daniel Smoot reported on Friday that tapping the SPR has only been done on rare occasions, including after hurricanes and tropical storms. As Daniel wrote...

So the country is unlikely to do so unless the situation becomes truly dire. Because of this and OPEC's ongoing policies, U.S. benchmark West Texas Intermediate ("WTI") has climbed for its seventh week in a row – its longest growth streak since late 2013.

Daniel reported that OPEC+ will continue to gradually taper production cuts to prop up global prices. And while the U.S. supply could rise, an expected increase in demand during the winter will likely offset the availability of more oil – boosting prices further in the process.

In short, expect oil prices to keep climbing...

You'll likely notice higher prices at the gas pump when you fill up your car this winter, as well as on any oil-related energy bills.

But fortunately, as we wrote in August, there are also opportunities to make – and protect – your money via this trend...

If you're looking for inflation hedges today, the oil sector is a great place to look. It checks the boxes as an addictive, in-demand industry that has "pricing power," if you ask us.

As we wrote in the August 26 Digest...

Doc says oil is one of those assets that will rise in an era of inflation – like gold and real estate... And he believes we will experience more inflation than many others think we will over the next three to five years.

Second, while the popular play today is to bet on alternative-energy investments – and for good reason, with the government throwing all kinds of financial support behind electric vehicles, for example – the truth is... the world's oil habit is going to be a hard one to kick.

It will happen much slower than many folks might expect.

We'll echo what we said in August...

If you're a believer in the idea that oil prices will continue to push higher, you can look to own oil stocks. As we said back then, though, not everyone is on board yet...

Putting money into the oil industry isn't exactly popular today. It's one of the most "hated" sectors out there. If it's not for you, that's your prerogative...

But if you're interested in protecting your portfolio from inflation, these companies are continuing to work their way back from the depths of the spring of 2020. With that said, for the most part, their shares are still remarkably cheap today... That's a big deal in a world where almost everything is expensive and getting pricier.

In August, Doc identified one such company that will benefit greatly from higher oil prices. The higher they go, the bigger return Doc sees in this company's shares. If you're worried about inflation, owning this company – and others like it – is a good idea.

Retirement Millionaire subscribers who followed Doc's advice on this position are already up 43% in less than two months. And the good news is... Doc and his research team still rate this company's shares as a "strong buy" today.

In fairness to Doc's paying subscribers, we can't reveal the name and ticker symbol of the company in this Digest. But we can offer you a special deal to join those folks today...

A subscription to Doc's excellent Retirement Millionaire service is a must-have for any investor as far as we're concerned. For only $49 a year, you'll get 12 issues featuring monthly recommendations to protect and boost your portfolio... and a host of special reports and bonuses.

Get started with a Retirement Millionaire subscription today. (And existing subscribers and Stansberry Alliance members can check out Doc's August issue right here.)

The impact of higher oil prices is a lot bigger for some emerging markets...

For large, diversified developed economies, higher energy prices can help or hurt companies' bottom lines in specific sectors of the economy (like transportation)...

But in the broader scheme of the U.S. or European economies, energy costs – except in truly unusual circumstances – aren't a make-or-break issue.

It's a different story in a lot of small and less-developed economies, though...

For countries where energy – oil and gas, in particular – is a big contributor to the overall economy, a higher oil price is like money from the sky.

For example, Nigeria is Africa's largest economy. In that country, oil accounts for around 6% to 7% of GDP and 90% of export revenue. Perpetually unstable, Nigeria – with roughly 200 million people – is the biggest country that no one wants to think about... particularly about what might happen if it implodes.

A higher oil price means that any potential "day of reckoning" is pushed back.

Similarly, the economy of Venezuela – often overlooked as the country with the world's biggest oil reserves – has long been on the ropes. A one-year government bond in Venezuela is yielding 50% today, taking into account the financial risk in the country.

A higher oil price means that the government has a little bit more wiggle room... and that the pressure for political change will ease a bit. (That's not a good thing for long-suffering Venezuelans... but it's not so bad when we're thinking about short-term stability in a highly volatile world.)

And of course, all the oil-rich economies of the Middle East benefit from a rising oil price... Energy revenues in Kuwait, Qatar, Oman, Saudi Arabia (through the world's largest traded company, Aramco), and other countries in the region will boost the local economies.

That has a follow-through effect on consumer spending. And it makes it easier for energy-reliant economies, including Russia and Kazakhstan, to delay efforts to diversify their economies.

But amid higher oil prices, energy importers can face their own 'day of reckoning'...

The big problem for developing economies is that they can only buy energy using hard currency. Thailand, Zimbabwe, or India must convert its local currency into dollars (or euros) to buy oil – which hurts the country's macroeconomic position and can make the currency fall in value.

Emerging- and frontier-market broker Tellimer calculates that the impact on the "current account" of a higher oil price is particularly big on the economies of Ukraine, Jordan, Georgia, South Korea, and Taiwan.

(The current account reflects the value of imports compared to the value of exports. However, it's only one piece of the macroeconomic puzzle... A big swing in imports can result in a weaker currency and reverberate throughout an economy.)

So... as much as a higher oil price might cause more Americans to spend more at the gas pump and result in higher oil-related energy costs in general... watch what happens across the rest of the world as well.

More expensive oil will be good for some countries... and an economy killer for others. That, in turn, could make the U.S. economy a bit stronger, relatively speaking... or more like the best house in a bad (world) neighborhood.

With higher oil prices on the way, we'll likely find out one way or the other soon enough.

Rick Rule's Inflation Playbook

Investors are ignoring the arithmetic and evidence around inflation and have been conditioned to do so for the past four decades, according to Rick Rule, the founder and CEO of Rule Investment Media. And as he tells our editor-at-large Daniela Cambone, that's a mistake...

Rule talks about how he's concerned about inflation in the years ahead. And to our point in today's Digest, he offered the oil and gas sector as a way to survive it. As Rule told Daniela...

Everyone wants to drive cars and stay warm. The oil and gas business... didn't go away. It still looks very, very, very attractively priced.

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 10/8/21): Brown & Brown (BRO), Black Stone Minerals (BSM), Continental Resources (CLR), Freehold Royalties (FRU.TO), JPMorgan Chase (JPM), Mosaic (MOS), Cloudflare (NET), Northrop Grumman (NOC), Royal Dutch Shell (RDS-B), VanEck Vectors Russia Fund (RSX), Telekomunikasi Indonesia (TLK), Tata Motors (TTM), AMERCO (UHAL), and United States Commodity Index Fund (USCI).

In today's mailbag, more thoughts on U.S. supply-chain woes and feedback on Friday's Digest by Stansberry Asset Management Chief Investment Officer Austin Root. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"I just read your 'Order Your Christmas Gifts Now' message from Corey McLaughlin today and thought I'd pass along this info about another weak leg in the supply chain: Chinese government policies!

"My neighbor has a business that imports products from China and resells them both here in the U.S. and in the UK. He's been plagued with backorders for his products (medical supplies) and was texting with his production factory in China when he got the [following] message last week...

"'China government had started to limit all produce ability of factory. Factory only can produce 1-3 days each week. All prices will be rised soon. And need much long time to prepare products. So payment for invoice late, time and cost will be changed. Pls notice that it is a whole China notice.'" – Paid-up subscriber David G.

"I am an American living in Italy. The only shortage of goods I have ever seen here during the pandemic here was flour. That's it. Plenty of toilet paper! I drive by used car dealerships and their lots are full. Americans over-consume and outsource too much and now they are paying the price. There is little moderation. Every so often I go to the U.S. and notice how much more expensive everything is. Here, price inflation is not even noticeable." – Paid-up subscriber Matt C.

"Folks: I'm feeling much better after reading the Digest [from Friday]. I really like the [American Moonshots] Portfolio that Austin Root started.

"Doing very well with it, only wish I had allocated more of my portfolio to Moonshot recommendations! But [since it was] a new concept, I allocated only 4-5% to my account. It now has grown so much it accounts for 13% of my account. Austin Root! You are amazing.

"Glad to hear from you and keep up the good work. Maybe I can retire after all? My retirement plan was to keep on working until I can't get out of bed, LOL." – Paid-up subscriber Dave K.

"Your 'farewell' was beautifully written. I hope your time with [Stansberry Asset Management] will be beneficial to you as well as those you serve." – Paid-up subscriber Carol G.

All the best,

Corey McLaughlin and Kim Iskyan
Baltimore and Ashton, Maryland
October 11, 2021