Oil Market Update: Crude Oil Faces a Perfect Storm

[00:00:00]Hey, good morning everyone. Uh Troy Eckard here with Eard Enterprises. I thought I would do a short update on what's going on in the marketplace. Just trying to bring everybody up to speed.

[00:00:09]Um let's start off with the market. Uh, one of the things that we ought to pay attention to, and there's multiple things going on in the oil and gas sector that we should be paying attention to with all the moving parts, with two wars taking place, with the straight of Hormuse being locked down now going on five months, we have to really start focusing on the fundamentals because it doesn't really matter what the armwaving uh does. It doesn't matter what all the rhetoric is about. It just boils down to supply and demand.

[00:00:46]Um the IEA, International Energy Agency, is wrong 99.9% of the time. In November last year, they said we'd have a rise in demand until 2050. Today, they say we're going to have the first time we're going to have less demand in 2027 than we did in 2026. the first time we've had a drop in demand uh since co I don't trust the agency. I think the agency is run by political gerrymandering by other countries. It doesn't have anything to do in my view with reality. Um I've been following them for 20 30 years and I'm telling you they're wrong 99% of the time. You look at your professionals like Goldman Sachs, you look at all your different oil experts. If you just trailed the last 18 months, they've been wrong 95% of the time. even before the new war with Iran started.

[00:01:37]What is what is the problem with the predictions? What is the problem with investing in owning oil and gas when you're always looking at it from a standpoint of an emotional asset class that really is affected by geopolitical and global events on a day-to-day basis?

[00:01:55]Well, I start with the first premise.

[00:01:57][clears throat] The United States is the largest oil and gas consumer on the planet. We also are the largest oil producer in the planet and we're also one of the industry leading producers of LG in the planet. Now the current president and in really any president of this country should always want abundant, reliable, consistent um and the most efficient energy source for our country. It has to be fossil fuel.

[00:02:23]There's no other way around it. So if that's true, we also have to have it inexpensive because the price of energy really drives an economy either higher or lower. Too expensive, we order a recession. Too low would run out of supply. People stop exploring. So there's a fine balance and the balance is always what is today's fair market value. I just go back to a piece of superbubble bubble gum. When I was a kid 40 years ago, you could buy a bag, a bag with a hundred pieces of Superb Bubble for $1. I go mow the grass next door. I could go do some chores in the neighborhood, put five or six, seven, eight bucks in my pocket, had all the money I needed, and I could buy all the Superb Bubble I want. Today, that same piece of Super Bubble cost anywhere from 10 to 12 cents a piece. That's called inflation.

[00:03:15]Now, one of the things we have to remember is that if gum or a bucket of chicken at the local chicken uh restaurant, a Chick-fil-A sandwich, a Taco Bell, used to pay 39 cents for a Taco Bell. I don't know what they are, $189.

[00:03:32]But somehow the government and all the pundits with all these financial institutions believe that oil and gas should stay at $55 or $65 a barrel.

[00:03:42]What's interesting to me is that 15 years ago they were talking about oil staying at $40 to $42 a barrel. Break even used to be considered $37 a barrel 15 years ago when horizontal drilling took place. But slowly and consistently it's moved from $37 a barrel break even to now they're talking $65 a barrel break even. Now there's two types of break evens. There's break even in terms of just extracting the oil out of the ground and then there's break even in terms of the enduser or the end owner of that oil and gas in terms of its applied financial resources. In other words, is it owned by an individual who just says, "Hey, the well cost $8 million to drill.

[00:04:24]I got to produce this much oil to get my money back and the cost of operations is why it takes this much price per barrel just to produce it because my costs are a certain level." That's just pure economic break even on a well-by-ell basis. Then there's the actual break even which is let's say oil and gas is owned by a country and that country maybe uses 20 30 65% of the revenue from oil and gas [clears throat] to run their country and if that's the case the break even can be completely distorted. So we always hear in the news about break even being in Iran or Iraq at at 11 12 $13 a barrel. we about break even being, you know, $55 a barrel. Angola and Argentina and the Vakam Muertes is like $38 a barrel. That's all nonsense. That may be the true individual well break even, but that's because they're not factoring in what really has to happen when it comes to crude oil. So, what's caused this inflationary crude oil price is not necessarily the cost put a bit in the ground and extract barrel. It has to do with the fundamental economics of the dollars created by that oil that's produced that ultimately ends up being the price that has to be generated in order for it to be economically viable.

[00:05:37]So let's just use any country Saudi Arabia, Kuwait, Dubai, I mean Kuwait, Iraq, Iran, and ask ourselves a question. What do they really need in terms of money generated in terms of revenue from the sale of oil and gas within that country to run their country?

[00:05:54]That's a whole different ballgame. And those prices range anywhere from about $75 a barrel to $135 a barrel. So the arm waiting that we hear all the every day in the news is one thing. That's that's the excitement. That's the emotion. That's what's driving the market. And I read this morning that Michael Bur, the guy that uh was involved in the movie Big Short and had predicted the housing crisis, also shorted Oracle stock. And Oracle stock's down by probably 60 70%. It's been obliterated. It's now being rated down to tripleB credit rating. This was a guy that a year ago, Larry Ellison was considered almost at one point wealthier, I believe in one day, than even uh Elon Musk. Now, his company has triple B credit rating.

[00:06:40]See, the same arm waving is taking place in the AI and data center market right now. No one wants to say the emperor has no clothes. No one wants to say that what they've done is they've had a foot race to the edge of the cliff. They've had a foot race saying that maybe you don't want to be the winner. Maybe you want to be the one that survives. Let me go through a couple of things that are really going to make you sit back and think. If we consume about 21 million barrels a day of oil and we produce 13.8 8 million barrels. Now, we have some liquids. We have some NGL's, but let's just say we're about 5 to 8 million barrels a day short of actual crude oil production from what we consume today.

[00:07:21]And the leader in AI and the leader in data and the leader in this new technology and the leader in manufacturing and the leader in LG export is the United States. That's never going to stop. And the bow is not going to be choked back. Although the radical liberals and the psych psycho on the environmental side tried to derail it for 15 years and they did a really good job, the fundamentals are the consumer is always going to buy what is most advantageous to them and they're going to buy what is most accessible, most reliable and what they can put in their car and the product they can buy with that energy source that protects them and their family and is fundamentally economically viable.

[00:08:02]So now we go back to the war. I say, "Okay, we have a war." And from the beginning of the war in March, it was oil is going to go to $150 to $200 a barrel. And the president of the United States has literally done everything that he can think of. Everything he can think of to convince the world, don't worry, this conflict is over. The straight of Hormus will be opened up.

[00:08:24]The 18 million barrels a day that was going through the straight is going to be fixed. And the fact of the matter is it's not. In fact, it's going to get much worse. My prediction is it gets much much worse because now it's spread.

[00:08:35]It's spreading like a cancer and you can only pound somebody so long. You probably seen videos where two guys get in a fight, one guy's down, he's about knocked down, the other guy just keeps pounding on him. At that point, you're not beating the guy up. You're abusing the position you're in. I'm not going to ever question our military. I'm not going to question the president's decision. I'm just making an observation.

[00:08:57]You can bomb them nine nights in a row.

[00:09:00]You're not going to get rid of them.

[00:09:01]You're not going to keep them from doing something in six months, 12 months, a year from now. If there's been any significant change in the crude oil transportation out of the Middle East, it's the following. There's jealousy.

[00:09:15]There's hatred amongst many of the countries. There's disalignment in their incentives and their financial well-being. There's disincentive in their ideology. And they don't all get along like Kumbaya. And if I'm not doing well, well, you're not going to do well.

[00:09:27]And if you support the United States and you don't support my ideology and so whether it's the straight of Hormuse or a brand new pipeline going to the Mediterranean Sea, it does not matter because there's a new tool in the arsenal of terrorist and it's called drones. And so I'm convinced that even if somehow you get the stray hormous into some kind of sense of normaly and you go build some brand new pipelines, it goes through Israel or go to the Mediterranean Sea or it goes to the Red Sea. Whatever you do, it's not going to be hard to run an entire swarm of drones along that pipeline and blow it up in a matter of an hour.

[00:10:04]You have a much bigger problem than the straight old moose. And what has really come about in the last 120 days is the incredible sensitivity and the incredible viability of commercial oil and gas out of the Middle East. So let's just say for names sake that the current status and the current situation continues for the next 5 to 10 years.

[00:10:26]The Middle East is disruptive. Okay. So let's just say that that effectively makes whatever 2 to 5 million 8 million barrels a day of disruption. That's about 2 to 5% of global production.

[00:10:40]Even if you have a recession, big deal.

[00:10:43]Even if you have less demand today than you did last year, big deal. because it gets worse. We forgot about that other little war that's taking place called Ukraine versus Russia. And if you haven't been paying attention, it's actually a more significant more significant disruption of global supply than even the straight hormuse. Russia has had about 35 to 40% of its refining capacity dismantled by the Ukrainians using drones attacking everywhere from Siberia right into Moscow. Now they're attacking their tankers and their ghost ships and their vessels and their afteracs. And what's happening in the Russian war is even more cataclysmic really than what's taking place in terms of the straight of horm. Why is that?

[00:11:24]Well, the straight of horm is simple.

[00:11:26]It's a little bitty body of water that's a choke point and everybody's got their eyes focused on it. In the meanwhile, everybody else that's using that choke point in that passageway to move their vessels in and out of the straight of moose, they're looking for alternative routes. That's just a logistical issue.

[00:11:41]That's just timing an issue. At some point, they'll have pipelines. They'll have different directions. They'll figure out other ways to get oil to the market. Maybe not all of it. Maybe not as inexpensive. Maybe not as easily, but they'll do it. What you're talking about with Russia is a whole different ballgame. Russia is the communist country who supplies all the other countries who agree with or coincide with Russia's view on the world.

[00:12:03]Communism rules. Putin's right. The West, America, is the evil evil Satan.

[00:12:09]and they've aligned themselves North Korea, Iran, China and Russia and other factions along with it. Could be Turkey, could be Syria, could be several other Middle Eastern countries. This is a true alignment of political ideology that now fundamentally is being viewed as the weapon of choice is energy. Every single country now knows the United States cannot handle its current economic strength if we have raising inflation. I don't need a ballistic missile. I don't need a nuclear weapon. I need to have a massive disruption in global supply of crude oil and run the price oil over $100 a barrel and it will break the back of the United States. Why will it break the back? Because we owe $40 trillion.

[00:12:53]And if the cost of capital when we go out and sell our T bills and our bonds and we have to pay 6 8 10% interest, we're financially broke. You will see this country absolutely hemorrhage in the cost of capital. You'll see the housing market, commercial real estate, you'll see the stock market take massive corrections as a result of rising the cost of capital. If you have rising cost of capital, it'll derail most of these AI and data centers. Most of them will not survive and their stocks will take a pounding. And if you take the top 10 or 15 stocks that are involved in technology and involved in AI data centers and involved in what's taking place on the current forefront of this evolution on new advanced technology, it will the stock market. You could lose 20 30,000 points in the Dow in a heartbeat because it's almost like sticky glue. When they begin to correct and fall like Oracle, the rest are going to follow it. Now, the only thing keeping the stock market alive today is pure uh snowball effect. Ball has been pushed off the edge. All the small investors were laying out there like flakes of snow and they've all been sucked into this snowball. And what's happening is people like Mark Michael Bur are selling most of his short positions and he's moving around the market and taking advantage of the fact that there's millions of retail investors who have no clue what they're doing, but they're involved in that snowball and they've been caught up and they're excited and it's going up and it's going down and they don't know when to sell and should they sell or should they buy more? Is this a dip? So when you start looking at a market that's completely in my in my view almost void of common stock observation and analysis and is more based on emotions and synergy based on FOMO and liquidity and ignorance of retail investors of which most have never been through a crash in their lifetime. We're going on 18 years 18 years since the stock since the market crashed back in 2008.

[00:14:44]So the idea here is what what is going to take place in energy?

[00:14:50]Because everything I described in technology, everything I described in AI and the data boom requires what? Double, triple, quadruple the amount of energy.

[00:14:59]And it requires it in electrical grids.

[00:15:01]It requires it in fuel and sourcing and energy and cost and transportation and logistics. And yes, AI is going to change the human workforce, but it's also going to change the energy consumption and the energy sourcing just as dramatically. You could easily see the United States go from 21 million barrels a day of consumption of crude oil to 25 to 30 million barrels a day over the next 10 to 15 years purely as a result of this AI technology revolution.

[00:15:29]If you start factoring in just the United States who's in a foot race with China and other major economic countries like Japan and everybody else, they're all going to try to run this AI data center and this AI technology because why? It's going to lead the new economy.

[00:15:45]You can't afford not to invest in it.

[00:15:47]You can't afford not to prepare for it.

[00:15:48]You cannot stop this snowball of technology rolling down the hill and it's going to consume so much more fossil fuels than we've ever dreamed.

[00:15:56]You could easily be at 105 to 110 million barrels a day of consumption within the next 5 to seven years purely because of what's happening in the market. Oh, but there's going to be a recession. Big deal. Oh, there's going to be a drop back. Big deal. This is so enormous. It's so large. The largest companies in the world, AI is going to drive Nvidia and Meta and Microsoft and Oracle. And you just keep going right down the list. And they're all stuck.

[00:16:23]They're stuck in a commitment that they made in a foot race that no one was going to win. No one's going to win it.

[00:16:30]They're all going to either win or lose together because they're tied by the same common problem. Chip manufacturing, speed, uh, electronic advancement, software, technology, and application.

[00:16:41]They're all running the same race for the same reason. It's just a matter of who has the deepest pockets, who's in the best position. But all that together means what? Enormous amounts of fossil fuel consumption. And not just in the United States, but every modern country is in the same foot race.

[00:16:58]I'm not worried about um a recession.

[00:17:01]I'm not worried about demand destruction. That's a joke. What you're going to find is certain parts of the economy that can be constrained are let's take a common household. My my paycheck goes down. I get tight. Well, I stop going to the movies. I stop eating out. I I cut back on my travel. Those are things that are within my within my realm of control. But I still got to buy fuel. I still got to buy tires. I still got to buy plastics. I still got to buy things for the house. I still got to have medicines and gloves and syringes.

[00:17:30]And I still got to it's not going to stop. And what they're going to do is they're going to switch and say, "Okay, I can't drive to work as much. So, I got to have a new microphone. I got to have a new desktop. I got to work at home. I got to work remote." You're still burning oil gas. You're still burning electricity. just do it. So you can have some uh luxury or or uh variable consumption items within the energy consumption that allows you to modify or reduce demand in that particular special space. But it's not going to stop the overall aggregate of consumption of energy going forward. It's going to be exponential over the next 10 to 20 years. So let's go back four months and we had a certain output of oil that was about 100 million barrels a day. Every country was maintaining oil prices were about $66 a barrel before the war started. This morning it was like $84 and some change. And what's happened is is that we've also done something extremely dramatic that I didn't think would happen. It has happened and now we have to account for it. We emptied our pockets. We went up to the counter and said,"Hey, we need to have a bag of flour and I need the flour and you don't have any flour and there's nine guys behind me that want the same bag of flour and now it's going to be whoever is willing to pay whatever price to get the flour."

[00:18:48]But the shopkeeper goes back and says, "Well, Louis, what if I took the bag of flour and I split it into four bags and I make the bag look a little bit make it look like it's it's it's four times as much, but it's really the same bag of flour." That's essentially what's happened to the oil and gas market. We don't have the extra 18 million barrels a day that's been disrupted by the straight over moose. We still don't have it. Okay. The only reason why the price of oil has been down the last three weeks is President Trump so-called negotiated anou and they open up the straight and they probably moved about 100 million barrels of oil from the inside of the straight that had to go through the passage and get out. It they were already loaded. The tankers were full. They were sitting there for 4 months waiting to get out because the hope that theou would work. They were to move that 100 million barrels. Well, temporarily it looked like we had an extra 100 million barrels of oil for two weeks. Price oil went down. Then the conflict started again about seven, eight, nine, well 10 days ago. And now is the realization which is they have no intention on giving in. They have no intention on agreeing. Theou the delay is all about one thing. Getting as long as they can till November, hoping President Trump lose control of the House and the Senate, hoping that it causes tremendous financial pain to the US, hoping it causes inflationary trends across the entire world, hoping that these Western countries take a massive financial hit because it's better than a nuclear bomb. It's better than it's better than a ballistic missile. You crunch the economies of your enemies and they can't pay for new missiles and they can't pay for weapons. They can't pay for their debt. And if you start seeing the United States debt in trouble where other countries don't want to buy our T bills and bonds, we now have a cataclysmic financial crisis. And I think it's brewing. And I think it's brewing in a big way. We're not spending any less. We're putting 40 billion here and 10 billion there. And hell, I don't know how much they've stolen. I cannot believe. I mean, you go to 7-Eleven and you steal a slurpee for $3, you're going to jail with handcuffs. You go steal $10 billion and you send it to Somalia and they just talk about slapping you in the wrist, putting you in jail for 5 years.

[00:20:45]I haven't heard a a damn thing about anybody going and collecting the money that was stolen. I guess if I were president for the day, I would look at Somalia and said, "You have exactly 30 days to return the $40 billion that your citizens have stolen from our country or we're going to stop doing economic business with you. We're going to recover through tariffs $40 billion from Somalia starting today and you're going to go round up everyone who received that money and you're going to put them in jail and get our money back. See, that's what should happen. I don't know.

[00:21:11]I'm not I'm not the guy that's in charge, but that's kind of how I would approach it.

[00:21:15]Let's stay focused for this morning.

[00:21:18]When you look at the price of oil and you look at it every day, it's kind of like watching a [snorts] hockey game.

[00:21:25]All right? If you're trying to judge who's winning the game by each person or persons that touch the puck, you have no clue what's going on. You don't understand the game. In fact, it moves so quickly, you can barely tell where the other players are positioning themselves in terms of receiving or sending that puck. I like hockey because it's very fastpac. I like hockey because it's very intricate. But that's what's happening with the oil and gas industry today. There are more moving parts in oil and gas in the globe today than ever before. And they're not good movements.

[00:21:58]When you think about Russia and what's happening to it, it is in my view two to three times worse than what's happening in the straight news. So although we may not like Russia, although we not like Russia's policies, although we don't like who Russia sells oil to, although Russia is in a war killing hundreds of thousands of people with Ukraine, what really we don't want to think about is the fact that Russia supplies the majority of these so-called bad actor countries with their oil, their fuel, their diesel, refined product. If those countries cannot get oil and supplies and diesel from Russia, they're going to enter the legal market, not the black market. They're going to they're going to enter the legal market and say, "We got to have oil from new sources because Russia can't get it to us." That means they're now going to compete what I call normal market priced oil, Brent crude, US WTI from normal resources. They're not going to get it from Russia. And I suspect that Vladimir Putin has no intention on surrendering, giving in, or acquiescing, or backing up from Ukraine.

[00:23:02]In fact, he's been really quiet for the last three or four weeks. And my thinking as a novice is that he's preparing for a counterattack that the world probably doesn't want to see. He's going to do something so horrific, it's going to it's going to lead to a much much deeper conflict. You know, he has nuclear weapons, he has hydrogen bombs, he's got all kinds of special weapons.

[00:23:24]We have no idea if he's not sitting back there making 20,000 drones and one day he says, "I'm sending out 10,000 drones in a single day to go to Ukraine and wipe out most of the major cities." He's going to take it to the next level.

[00:23:37]Well, between the drone use in the war and the realization of the Straight of Hormuse, we have a long-term fundamental problem. Let me tell you why. Let's say by some miracle, President Trump gets the Straight of Hormoose opened up.

[00:23:51]somehow he ferrets out and gets out the leaders that continually shoot off these missiles, bombs, and drones out of out of Iran. Not likely to happen, but let's just assume that's true. Do you not think that instead of trying to build a nuclear plant that's going to cost him $20 billion, the Iranians go, you know, let's keep working on that because that's a great threat and that scares Israel and nobody wants us to have a nuclear bomb. So, we're going to do we're going to do the President Trump playbook. Slide a hand. Let's focus on the nuclear. Focus, focus, focus.

[00:24:19]Everybody wants to find the nuclear nuclear weapons and the in the nuclear enriched uranium. But in the meantime, what we really want to do is go over and build 10, 15, 20,000 drones. In one day, we're going to release 500 drones along that pipeline that Saudi's building, and we're going to blow it up. About every mile, we're going to blow it up. Two years to build it, take us a day to blow it up and get rid of it. Let's go ahead and go to the different ports that are not our ports. Let's go find all the vessels that are not friendly to Iran or other rogue countries. Let's start a war that says we're going to disrupt global merchants and global supply and global logistics when it comes to energy and vessels and pipelines and and midstream assets. Let's just disrupt it because if oil's at $150 to $300 a barrel, who wins? Not the western economies, not the free market economies. Who wins are the terrorists because they don't care about free economies. They can last for a long, long time with very little money.

[00:25:14]But not the United States, not some of these other countries like France and UK. We we thrive on business. We thrive on economics.

[00:25:23]So you're going to find we could find ourselves in a temporary realignment of logistics and supply. We could find ourselves in a cataclysmic jam when it comes to Russia, which is going to be more intense and more significantly um disruptive than Iran because Iran only makes like 2 and a half million barrels a day. Russia makes like nine and a half million barrels a day. And between their refining and their production, if you disrupt that 1 to four million barrels a day, and it's long-term disruption because they're blowing their plants up, refineries, they're forced, their ships, then the other global buyers are going to go buy the oil we've been buying at $85 a barrel. Now, we have more competition.

[00:26:03]We have 30 40% more competition for the barrels that are not affected by the straight horm and not affected by the war. in Russia as Ukraine continues to dismantle every single day Russia's heartbeat, which is their oil and gas industry.

[00:26:20]I want you to think about all this because you're going to sit there and say, "Well, that sounds good." And Troy's guessing like everybody else. And again, you're right. It's just one man's opinion. But I want you to think about how this looks like in the next 5, 10, 15 years. And what it looks like to me is the cost to produce a barrel of oil, whether it be inside the United States or globally, has got to go up 25 to 50%.

[00:26:44]And will not come down. I'm not worried about over supply because the disruption in normal supply is already being deteriorated. So what I really want to do is position myself inside the US to provide barrels of oil to the United States economy because if the economy goes south and our dollars worth less, we can't buy that oil abroad in the same way we can produce our own barrel internally. So if the outside world has $125 oil and our US dollar goes down because the cost of our capital goes up and our economy is being hit because we're seeing this disruption I just described. The dollar goes down, we have less purchasing power. It costs a$130 versus a dollar to buy that same barrel of oil we're trying to import. It's going to drive US production values up by 25 to 50%. We can see oil easily at $ 110 to $125 a barrel and have a new ceiling and a new not a ceiling, but a new basement price for oil. And that basement price could be north of $100 a barrel. And you say, "Well, come on, Troy. That's nonsense." I think many of you should go back and take a look at 2009,10, 11, 12, and 13 all the way up to about middle of 2014. We were perfectly comfortable paying $89 to $115 a barrel for about four years. Didn't anyone blink an eye? President Trump comes in and gets office in 2016. Then he uses every political tool he has to drive oil down to $55 a barrel. Now, you can do you can do what you want when you're president of the United States, but you can't crush, change, or alter a free market for very long. That's why it's called a free market. And what's going to happen is, in my view, is that we're going to get past the next 28 months when President Trump is longer president. And then real free market policies are going to take place. And those free markets are going to say, "You know what? It's really good that we tried and and and we artificially suppressed oil prices because we needed for the economy to work, but we owe $40 trillion in debt." See, President Trump has not reduced our our financial debt at all. He's added to it. So, when you leave office and you have this booming economy, you've taken the economic class 101 that says you can either do top down or bottom up. Okay? He didn't do top down. He didn't cut cost. He's trying to do bottom up. He's trying to outgrow our debt. But if you stumble and fall and you don't outgrow the debt because the AI, the data centers, the chips, the manufacturing, the tariffs, if all that stops when he leaves office, your bottom-up theory just died. Now you have a stool that's overweighted at the top and you have too much debt. And there's only one way to do it. You got to cut cost and you got to dig in deep. And it could be a 5 to 10 year haul trying to pay off $40 trillion. It's happening right before your eyes.

[00:29:25]>> [music]