Real Things Still Matter
A suggestion of higher oil prices ahead... We're the problem... Real things still matter... A few tailwinds for silver... A silver tint to the 'green energy' movement... Learn more from our Commodity Supercycles team...
Following up on the oil cartel's surprise move...
On Monday, I (Corey McLaughlin) wrote about how many members of the OPEC and OPEC+ alliances announced they would be cutting oil production or extending existing cuts starting in May through the end of 2023. The result cuts off more than 1 million barrels of oil a day from the global markets.
Oil prices spiked in response... by as high as 6% in the 24-hour period after the decisions hit headlines. It's a reminder: Even in a world of fake money, real stuff still matters.
That even applies to "hated" things like oil pulled from the ground. Like I wrote in a Digest nearly a year ago...
Throughout the past two-plus years of the COVID-19 pandemic and into a war that has shaken global supply chains, I sense more people have been reminded of – or have learned for the first time – "where things come from."
The things that we buy come from real places. They're harvested or made by real people. They're shipped in big containers by rail or airplane. And while these forms of transportation are as automated as possible, they still rely on real workers to run smoothly.
That's not to say these ideas were never important. They always were, of course. But folks are paying more attention now on all kinds of raw materials than just two years ago...
We also posited that the next "commodity supercycle" was in its early stages.
Today, I have two more takeaways about the recent developments with oil...
First, as DailyWealth Trader editor Chris Igou wrote to his subscribers yesterday, oil rising more than 5% in a day (as we saw on Monday) tends to be a harbinger of higher prices to come in the longer run.
As Chris wrote...
By seeing what happens after these spikes, we can get an idea of what the oil market will do next... and if the OPEC+ cuts actually mean upside for oil. Check out the table below...
Oil doesn't tend to change much over the long run. In the past 40 years, it has gone up roughly 2.5% a year. But the oil story is a lot wilder in the short term.
Prices can rise and fall in quick order. Similar 5%-plus spikes in oil have led to even higher oil prices over the next year.
Over three and six months, the upside is around 5% and 6%, respectively. That return goes up a lot when you get out to a year... up 17.4%.
To make a long story short, take note of this history.
We're the problem...
Secondly, I want to briefly follow up on another angle to the oil story that we shared on Monday. I wrote that the U.S. energy secretary recently said it could take years to refill the U.S. Strategic Petroleum Reserve ("SPR") and "the OPEC countries know this."
And they apparently were not happy about it... As part of her comments last month, Energy Secretary Jennifer Granholm said it would be difficult for the U.S. to take advantage of that stretch of low oil prices to replenish the SPR. In part, she blamed maintenance at two of the country's four SPR sites.
Well, the Financial Times reported that "people familiar with Saudi Arabia's thinking" have said that the Saudi government was "irritated" by that comment. The message and the fact that the U.S. telegraphed it, whatever the real reasons may be, were all part of the calculus of OPEC and its associates cutting oil supply.
In sum, we'll repeat the ideas we detailed on Monday in the immediate response to the production cuts...
Cutting any significant percentage of global oil supply is a catalyst for potentially higher oil prices and a number of other consequences. These could include higher-than-expected inflation rates, more income for the Russian military, more geopolitical tensions, and – given the supply-demand dynamics here – also more profits for U.S. oil and gas companies.
Keeping with the 'real things' theme...
Oil isn't the only commodity that's poised for a price jump. In the latest issue of Commodity Supercycles, published on Monday, editors Brian Tycangco and Bill McGilton detailed in a terrific report why a certain precious metal is about to explode higher in value...
I can tell you they were talking about silver.
Brian and Bill shared a few bullish tailwinds for the metal, which many consider gold's more volatile little brother, that might not be obvious to most people... While silver shares gold's utility as a store of value, industrial demand for silver is also rising.
You might know silver is used in a lot of technology – like smartphones. As Brian and Bill wrote...
Thanks to silver's conductive and noncorrosive qualities, along with its relatively lower price to gold, it has many uses in the $1 trillion global consumer-electronics industry.
The average iPhone, for instance, contains 0.34 grams of silver. That might not seem like a whole lot. But when you multiply that by the 232 million iPhones sold each year, it amounts to 2.54 million ounces of silver.
Silver is also used in the printed circuit boards that control practically all types of electronic products made today: calculators, desktop computers, laptops, TVs, microwave ovens, refrigerators, and water heaters.
Here's where things get really interesting, though...
The "green energy" push is another tailwind for silver. Consider this... The average electric vehicle ("EV") contains at least 25 grams of silver. And by some estimates, 10 million EVs were sold in the world last year. That comes to more than 8 million ounces of silver.
But as Brian and Bill shared with Commodity Supercycles subscribers...
Renewable energy is where the really ravenous appetite for silver is. A typical solar panel uses about 20 grams (or two-thirds of an ounce) of silver.
Each gigawatt of solar power requires about 3 million solar panels to produce. And the world is now installing solar-power capacity at a rate of hundreds of gigawatts per year.
The Silver Institute estimated that last year, the solar industry consumed 127 million ounces of silver, which is almost a quarter of total industrial demand. And it's only set to grow larger in the coming years as countries embrace solar energy for homes, offices, and factories. The number of solar-power-capacity installations is expected to quadruple by 2030.
We've said many times that the global push for alternative energy can and often will be a tailwind for "hated" commodities in the years and even decades ahead. Chalk this up as another example because, as Brian and Bill wrote...
Silver is a funny metal. While hundreds of millions of ounces of it are mined every single year, most of it isn't mined as silver alone.
That's because silver is usually found together with other metals in the ground... the most common of which are lead, zinc, copper, and gold.
In fact, silver is usually mined as a byproduct of these other metals. These types of byproduct mining of silver account for 73% of global silver output. The remaining 27% comes from primary-silver mines.
Other tailwinds for silver include dwindling inventories in recent years and inflation concerns. Brian and Bill expect silver prices to rise by at least 50% to 100% over the next two years. Based on these factors, Brian and Bill recommended adding exposure to silver and explained the best ways to do it...
Give Commodity Supercycles a try...
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Does OPEC+ Know Something We Don't?
In the latest episode of Making Money With Matt McCall, Matt analyzes the recent market action and considers the motivations behind the global oil cartel's decision to cut oil supply for the rest of the year...
Click here to watch or listen to this episode right now. And to catch all of Matt's shows and more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 4/4/23): Alamos Gold (AGI), CBOE Global Markets (CBOE), Copart (CPRT), SPDR EURO STOXX 50 Fund (FEZ), SPDR Gold Shares (GLD), Hershey (HSY), McDonald's (MCD), MarketAxess (MKTX), Flutter Entertainment (PDYPY), Sprott Physical Gold Trust (PHYS), and Unilever (UL).
In today's mailbag, feedback on yesterday's Digest where we mentioned layoffs at several big businesses... and some more thoughts about what's happening in the oil markets...
"McDonald's along with other companies mentioned which are announcing layoffs are so far all profitable companies dealing with inflation and a rising interest rate environment.
"Why is it that none of the zombie corporations have announced any layoffs? Could it be the Fed is backstopping them to keep them afloat due to the maximum employment mandate?
"The zombie corps need to be allowed to fail." – Paid-up subscriber Jim S.
"It seems to me too little emphasis is placed on the method mechanics of 'unemployment' statistics. As some, but not most, people know 'unemployment' data is derived from the number of people actively searching for jobs and ignores those who are merely sitting around NOT searching for a job. Thus, the figure is deceptive insofar as the actual state of the economy and the extent to which we're already a 'socialist' society is concerned." – Paid-up subscriber D.S.
"If Biden was smart... all he needs to do is open the spigot. The socialists and climate alarmists would lose their ever loving minds but if he pivoted and unleashed American oil all of the pain at the pump that will be coming will never happen.
"It would also give Russia a gut punch as the money they would get from selling to Europe and Japan at elevated prices would seriously hurt their war effort. It's such a simple choice but I doubt he has the stones to do it." – Paid-up subscriber James S.
All the best,
Corey McLaughlin
Baltimore, Maryland
April 5, 2023