How to profit from today’s volatile oil market

Steve Koomar, editor of Vigilante Investor and Curzio’s newest guest commentator, is back with us today to talk about the oil market. 

Steve has covered the oil sector extensively for many years. On this episode, he shares his views on the recent attack on Saudi Arabia’s Khurais oilfield. He also gives you some of his favorite energy names to buy right now… and which to avoid [10:41].

Oil prices affect just about every sector of the economy. But in my educational segment, I debunk the theory that higher oil prices will derail the U.S. consumer and crush corporate profits. I also give you a few tips on how to gain exposure to this volatile sector… without taking on a lot of unnecessary risk [30:41].

Transcript

Wall Street Unplugged | 687

How to profit from today’s volatile oil market

Frank Curzio: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media, to bring you unscripted interviews and breaking commentary, direct from Wall Street right to you, on Main Street.

Frank Curzio: What’s going on out there, it’s September 18th, I’m Frank Curzio host of the Wall Street Unplugged podcast, where I break down the headlines, and, tell you what’s really moving these markets. You know, people always ask me, “How is it being on your own. How is it starting your own publishing company. The positives, negatives”. I could tell you, it’s really, really hard. And of course, there’s positives and negatives for anything you do, if you’re just writing newsletters, doing two podcasts, researching, traveling, interviewing people all the time, all the calls throughout the day, managing, a ton of work. It’s a lot of work, but it’s worth it, because you get to do something that you love.

Frank Curzio: But I don’t know if everyone’s asking the right question, because I could tell you, compared to running a business, being a dad is like a 100 times harder. Especially when you have two daughters. Sons I think might be a little bit easier, at least on my side, but having two daughters, is definitely not easy. Because you want to discipline them all the time, then they cry, and I think I got to be on the side of a lot of dads here, but I’m a sucker when they cry. I mean, I can yell at them, and I actually say “Stop crying,” because they cry a lot during the day, and you know, they’re young. And I always feel bad like an hour later, and say “Oh, it’s okay”. But I can’t be mad at them longer than a few hours.

Frank Curzio: For example, my daughter Miranda, was in a bad mood, actually yelled back at her mom, which is definitely a “no no”. Take it from me guys, it’s definitely a no no. Unhappy wife means unhappy for everyone who lives in the house with her, so don’t do that. But anyway, my wife obviously punished her, sent her to her room, took her TV out of her room for a week. So, she’s going ballistic. Like, remember when you’re a kid, how emotional you get over something that’s really not a big deal? But, she was just screaming, going crazy, so you know, I said, “Let me go upstairs, try to calm her down”.

Frank Curzio: I sit next to her on the bed, I’m like, “Hey, honey, listen, are you okay. What’s wrong, what’s going on?” And she’s like, “Mommy is mean to me, and I did nothing. I hate mommy, I hate her so much, I can’t stand her”. When you’re a parent, you go through these stages, the “I hate you mom and dad”. So, she’s yelling, “I hate, I hate, I hate her”. So, I did what a responsible father should do. I stood up, looked her right in the eye, and said, “You really hate mommy? She does everything for you, including taking you to cheerleading, chess, Pokémon,” which she’s really into. Also bought her a dog, which by the way, all of us do not like, it’s not a good dog, it’s not a fun dog, it’s just ugh. Anyway, bought her a dog, a puppy.

Frank Curzio: I said, “You really hate mommy. So you better hope nothing happens to mom tonight, because man you’re going to feel sorry.” And I just walked out of the room. That’s what I told her. And as I’m walking out the room, my daughter is like, “No, no, I don’t hate mommy. I’m sorry, I love Mommy.” She’s crying. Now, I don’t know if that was the right approach or not for my oldest daughter, but yeah, making her feel guilty. Maybe, maybe not, it’s up to you if you decide that’s right or not, because she’s just going through a lot of changes right now. And she’s at that age, you know, that age…

Frank Curzio: Anyway, and she’s really a great kid. I mean, she’s mean and shit right now, but she’s… you know, 95% of time, she’s really, really good. And I thought that was a good way to handle it. I don’t know if that was right or wrong, but it did work and she apologized, “Oh, no, nothing happens to mommy.” So yeah, I just did the guilt thing on her and that was cold. But, it’s funny because it’s not just my oldest daughter and there’s a reason why I’m going in this. Getting a little personal for you, you see in a second, because I’m going to share a story that I haven’t shared with you yet.

Frank Curzio: But my youngest, I told you already has Crohn’s. And actually I’m not sure if it’s colitis or Crohn’s yet, the doctor keep going back and forth on it. But last week she had to get colonoscopy, so this is her second, and you know the poor kid is just eight years old. And actually she’s turning nine next week and she’s taking pills every single day. Which is sad, I mean, I didn’t have to take a daily pill. Think about you guys out there, when you had some taken daily pills like 35 36 37, that’s what for me and Lisa started. I mean, at her age doing that, you know, she’s obviously been through a lot.

Frank Curzio: But, the reason for the test last week, and again I didn’t share that I was going through this. Was to determine if she should get new medicines since the current one is not working. And when I say not working, it’s not putting her Crohn’s in remission, meaning there’s no red or intestines, no pain or anything, which is the way it’s supposed to be. You have flare ups and then… it’s usually painful. Then they go away for a while, with her there’s like slight pain, a little bit of blood when she goes to bathroom and stuff, which is normal. But it should be completely gone, so they said, “All right, let’s go and do this again.” Again, it’s the second time that that she had this procedure, you know, which is sad.

Frank Curzio: But, before you start feeling bad for her, my youngest is one of the smartest, most, [inaudible] kids I’ve ever been around. I’m not kidding, and not saying this and not being biased here, I mean, she knows exactly how to get what she wants. And for example, the week of colonoscopy, my wife and I was obviously spending a lot of time with her, We went to the hospital day with her. I bought her a nice stuffed animals to take to the hospital room along with, an Lol case, with numerous sol gifts in it. If your parent have a young boy, you know exactly what that is.

Frank Curzio: Just spending a lot of time with my youngest, which, of course my wife and I had to do. So, I felt bad for my oldest daughters since you know, we’re paying a lot attention to his sister and I’m always conscious of that. And I said, “Look, you’ve been good and you haven’t been asking for anything during this week and this time.” I said, “Listen, I’ll tell you what, when everything settles, we’ll spend a full day together.” Which was Saturday. So I took her fishing and golf, we had a great time. And before we left, my youngest says, “Hey, can I come?” And I’m like, “No.” And she’s like, “Well, why can’t I go? I want to go.” I tell her, I said, “I spent a lot of time with you this week due to the procedure, and I want to spend time with my oldest.”

Frank Curzio: And, you know what my sweet innocent daughter says to me, “But dad, that procedure, it’s not my fault. I didn’t ask to get it. I’m just the kid have to go through all this, and I’m in pain, and all I want to do is hang out with daddy by myself.” Brilliant, manipulative, creative, fill in a blank, any word. Anyway, I do what a tough father would do in that situation, and I completely caved. So the following day, which was Sunday, I took my youngest to the beach and for ice cream, and we had our own one on one time. Now, this is just what happened last week.

Frank Curzio: Okay, that’s just a week of all this stuff, and people say, “Well, how is it to run a business?” That’s a week, imagine doing it full time, being a dad, it’s really, really tough because it’s a job that you’re going to make so many mistakes, unfortunately, that you want to learn from. You want to do the right thing, and it’s funny because the way everyone handles different situations. And I love the fact that me, everybody criticized everyone else about their kids, instead of really taking care of their own kids. But it’s just funny how difficult that is compared to running a company. And I think a lot of dads out there, and moms, will identify exactly what I’m saying here.

Frank Curzio: Anyway, there’s a lot going on with the markets and I love sharing personal stories with you guys, because you guys are my family and it relates to everything that’s going on. We’re doing a couple podcasts today. I’m getting a lot of stuff out early, because I’m going to be traveling to New York, I got a lot of things going on, which is really cool. But, when I’m looking at the markets, a lot going on in what sector? Oil. And this is a sector that’s been dead for a while. There’s lower oil prices combined with rising supply and add most of the leverage that most of the oil producers sitting on. I mean, no just producers, drillers, it’s the whole industry.

Frank Curzio: I mean, this debt was restructured two to three years ago. I mean, you’re looking at now very high interest payments on these debts. And, this couldn’t have happened at a better time with drones, I know you guys read this story by now. It’s the biggest story and last couple of days. Drones, tech major oil processing facility in Saudi Arabia, not that 5.7 million barrels of daily production, or 50% of the kingdom’s output. And that equals about 5% of the global daily production, it’s a big deal guys. There’s a lot of stories out suggesting that Saudi should have 2 million out of that 5.7 back online by next week. And other stories suggesting that this attack is only the beginning.

Frank Curzio: The Saudi’s are blaming Iran for the attack which could lead to further tensions, possible war, between two very large oil producing nations. So it’s definitely going to impact on the sector. You could say manipulation in the meantime, Russia may even… Russia, other OPEC members, they already said, “Hey, we’re not going to push out oil.” They kinda liked that prices are going higher. Right? Because they’re all producing nations. But it’s got to be a lot of manipulation going on here, that could keep prices higher long term. So, the blts a lot of them out there predicting much higher oil prices, at least over the next few months. Maybe six, nine, well maybe 12 months depending at how much tension there’s going to be, and how much this is going to escalate.

Frank Curzio: Now today’s guests, I’m bringing in is Steve Koomar. Steve is a regular on this show. Good friend, edit the Vigilante Investor Newsletter. He covers the oil industry extensively. He’s going to share his thoughts on how to play this news since there is so many moving parts. It’s not just oil companies guys, airlines, truckers, defense companies, drone companies. Since there’s county drones, I had to build the destroy the hostile drones. And of course Steve’s also going to share his favorite energy stocks to buy and which ones you should avoid, because they’re not all buys here. A lot of them have gone up this week, for the press levels. So Steve’s going to give us a scope on how to play oil and what the implications could be if these two countries go to war.

Frank Curzio: So, a really great interview coming up. And in my educational segment, I’m going to continue on that theme, it’s the biggest story in the market. I’m going to give you my personal opinion on how to play volatility in oil sector since, and for oil industry for well over a decade, to every major share region in the US comes industry again for very, very long time have amazing contacts in a sector who I spoke to. And I want to share what they’re saying with you, because it’s a lot different than when you’re hearing in the news.

Frank Curzio: So it’s going to be a really great segment, because I’m definitely going to throw some really scary statistics at you, which are definitely not being mentioned in the media. So good seven coming up educational, before I get to that seven, let’s bring in superstar analyst, newsletter editor and friend Steve Koomar. And here’s that interview right now.

Frank Curzio: Steve Koomar, thanks so much for coming back on the podcast.

Steve Koomar: Oh, it’s a pleasure to be here Frank, thank you.

Frank Curzio: So listen, I brought you on short notice because I know you cover the oil industry extensively, and has a couple of things that you’ve been saying for a while, which you got to get to a little bit later. Which is exciting about oil and about, you know, just global and geographic, and economies themselves, which I guess could be very interesting. But, let’s focus on the latest attack from Saudi Arabia and what it means. Because you wrote about this, and I love your take, it’s a lot different than what you’re hearing out there. And they are saying, maybe it’s a rebel attack and it’s not a big deal. Tell us why this is a big deal.

Steve Koomar: Well, this is a really an extension of Iran hostility within the region and specifically towards Saudi Arabia. Iran is really struggling economically, and I think they’re trying to find a way to break out of this sanctions. We’ve seen that they’ve basically closed down their exports entirely. And, this attack, it… you know, they had their agents, the Houthi rebels in Yemen claim that they take credit for launching the attacks via drone. But, the drones that they would have had available to them could not have gone that far to get to the Saudi processing facility that was taken down or the oil field.

Steve Koomar: And it’s pretty clear that the attack originated from either Southern Iraq an area that was controlled by Iranian, Paris there or from Iran itself. And increasingly it’s looking more and more like it came from Iran, some kind of a coordinated attack between phones and cruise missiles. So, this is an extremely hostile action by Iran to be taking out their neighbor’s oil facility, and Saudi Arabia is in total 10% of global production, the amount taken out it’s about 5% of global production. And Saudi Arabia also has most of the world’s excess capacity. Like if you ever have a short call somewhere, Saudi Arabia is about the only place that can just crank up production really quickly and start exporting it.

Steve Koomar: I mean, even in the US, you can crank up production, but the infrastructure in the US is so overwhelmed right now with accommodating the expansion that’s taken place. I think getting more oil out of the US or even out of the US strategic reserves is a real logistical challenge. So taking out a lot of Saudi Arabia’s exports is a really big deal in the oil markets. So far, it’s not, it’s been downplayed by the Saudis for some really good reasons. And it’s been… the oil market hasn’t really reacted that significantly too with it. I mean, oil prices are up, but you know, the Saudis have promised to keep their exports running at the same level they had been by drawing down their reserves. That might satisfy the market if they can get the production back online quickly.

Frank Curzio: You know, more and more research is being available and you’re seeing satellite imagery of this. And what I am reading now, which is kind of amazing, is 17 different strikes which targeted 14 storage tanks, and three processing trains. What surprised me was the position of these things, where the drones hit these tanks at the exact same spot on every single tank. Right? So this is coordinated, this is professionally done. And when I look at… you know, it’s not rebels, you know, which was first… I mean, this is something done by, obviously people know what they’re doing, and not to mention that, nobody was hurt. Right? They did at the perfect time.

Frank Curzio: It makes me feel like, they had to know what was going on at this time. They knew exactly the places to hit, and they hit it at a time when nobody gets hurt, which is just… to me that’s questionable. When you’re looking at these details, what do you think is going to happen if you… Because it seems like the Saudi’s, and when I’m looking at all this information… I mean, they can’t sit back and do nothing, because they’re going to appear weak. But yet, are they going to go in the opposite direction, and possible conflict, because you are predicting the possibility of a full scale war. Which you know, you predict not just an oil, but you said it’s probably going to happen over the next 10 years, which you’ve been writing about.

Frank Curzio: And again, you have a lot of great research to back that up. Explain exactly what that means and what could happen because there’s a… to me, I think there’s a very high probability of that happening.

Steve Koomar: Yeah, I don’t know whether this particular situation is going to spin out of control into a war, but the conditions are there at any point in time for that to potentially happen? Yeah, there is really… Iran is become an intractable, an intractable problem in the Middle East. And, there are other flashpoints around the world, in Russia we made it to the Baltics, and Russia really not feeling secure without control of the Baltics. And as well, the Russia’s southern border as well, it’s another potential flashpoint. There are a lot of places where a war could develop, probably this is the most likely place.

Steve Koomar: And what you’re seeing right now with Iran really taking such an aggressive sense of action, and taking out its neighbors oil production, it could easily escalate. I think right now, Saudi Arabia needs to make some kind of a retaliation to show that the country is not… they’re not completely [inaudible] you can’t walk all over them. And the question is, what do they do? And does that prompt another response from Iran attacking Saudi Arabia. So for instance, Saudi Arabia could take out really all of Iran export capability if they bomb Kharg Island, 100% of Iranian exports flow through Kharg Island.

Steve Koomar: It’s a pretty concentrated, pretty easy target to see. It might be well defended, but I think you could get to it eventually, if you worked at it hard enough. And really take all that production out, if Iran loses its production in that way, I mean, what does Iran have left? And you have to wonder… I mean, they have a massive army, and they have long coveted the Saudi oil fields were on, which are largely in Shiite territory. And, I think it wouldn’t be insurmountable for Iran to send its army to cross Kuwait, and into Saudi Arabia.

Steve Koomar: And in that, in situation, really Saudi Arabia has a tiny army. I mean, I think they could inflict some damage on Iranian invaders, but there’s really almost no chance that they could stop them. And I don’t think that anybody else’s really in a position or willing to go out there and sacrifice their army to protect the Saudi oil fields.

Frank Curzio: Now, Steve, has that changed?

Steve Koomar: [crosstalk] out of control.

Frank Curzio: Has that changed? Because, you know, we saw Iran, I think it was… What was it? 1980s, right. Where some were saying they invaded Saudi Arabia, and you know… Correct me if I’m wrong on this with my history here, but you know, obviously we got involved. But is this a different situation, because back then, OPEC especially Saudis, their control of oil was a big deal. Today we’re the largest producer of oil in the world, does this make us kind of more hesitant to even get involved in something like this, to help them out? Because it would be a big deal if you’re saying that Iran could move their troops into Saudi Arabia and actually win against them without any help from either side.

Frank Curzio: But, how does the US stand from this? Is it different because now we’re producing our own oil, compared to, that can lead to a massive, massive shock and prices. And so could this, obviously. But I’m wondering-

Steve Koomar: Yeah, absolutely.

Frank Curzio: Your take, yeah.

Steve Koomar: Absolutely, it’s a completely different situation. In 1990, the world was dependent on Middle Eastern oil, and the US was even more dependent than most other countries. I think US was importing maybe half of its oil at that point in time. Now the US is a net energy exporter. There may be some imports coming in from some places and there’s also some exports in, it’s really more a logistical factor that there are any imports at all. It’s just a matter that the US has refining capacity, that heavy crude works in the US refineries, and the US isn’t producing much heavy crude. But, the US doesn’t need any oil from anywhere else in the world. And so there’s really no vested interest in protecting the flow of oil for the United States.

Steve Koomar: US allies desperately need that oil, but increasingly, you can see the US is less and less interested in protecting the interests of all of the rest of the world. I think the US could get pulled into a war there at some point in time, but the US doesn’t have a vested interest in protecting them, and protecting the flow of oil out of the Middle East. And if there was a big invasion like there was the invasion from Iraq into Kuwait in 1990, I don’t think the US would sacrifices blood and treasure to the same extent that it had in past, to reverse that invasion. I just don’t see it anymore.

Frank Curzio: Yeah. And I said ’80, and you know your history better than me, it was in 1990. But I knew that the situation, because I was been reading about this extensively over the past few days. Now there’s a lot at stake too, right? Because you talk about the Saudi Aramco IPO, which is on Slayton. It could be early into the year, I don’t know if they’ve announced official date, but it is coming. So you know, I think plan’s worth over the next six months, this is going to be the largest IPO in history by a mile.

Frank Curzio: I didn’t realize how big this was, but their valuation is going to be 1.5 to $2 trillion based on right now and the estimates that that are out there. So it’s massive, right? So, now they’re announcing that they may delay this, how does that impact it? Because again, you’re going to have to throw this into the mix, because this is a big deal, this is coming out. It’s been in the works for a very long time, and now you’re looking that you made the latest, does this impact anything? Does this impact valuation. But this also adds to the Saudis, it seems like they really need to do something like this or make a statement to me. But what are your thoughts on… because I know you wrote about it on Saudi Aramco IPO, does this change anything?

Steve Koomar: Yeah. I think what it’s done is it’s made the Saudi is much more reluctant than they normally would be to retaliate. I think they need to downplay this whole attack and make it look like it was not a big deal. Because if it looks like the Saudi oil assets are at risk, and they could be taken over by a hostile force, or taken down pretty easily by a hostile force, which they just were, and that that could really be economically costly by the country, but to the company. Then it’s going to be very hard for them to sell their stock at any reasonably high price that they would like to get.

Steve Koomar: So right now I think they’re trying to downplay it. They’re trying to make it look like this is all pretty routine. And they could try to stage a recovery as quickly as possible. It’s probably inevitable that it’s going to delay the IPO, but they still want to do it as quickly as possible. And I think that the Saudi oil tunnel are very… it sounds like their agenda for doing the IPO, is it gives them the money to diversify their economy. And they see some demographic challenges coming down the road, and they see a need to diversify the economy away from just an oil economy. This allows them to take some money out of their oil investment and spread it around to other projects that they want to invest in domestically.

Steve Koomar: And it’s kind of like this is really a critical time for them right now. They’re going to try to maintain a peace as much as possible. For that reason alone, there may be very limited retaliation and possibly even no retaliation, but no retaliation could very easily encourage another Iranian attack some point down the road maybe fairly soon.

Frank Curzio: Yeah, it definitely makes sense. So how do we… I mean, this is the big question I always ask. How do we play this as an investor, maybe people say, “Oh I miss the boat, a lot of these things have went up and they’re coming down a little bit now today, but early on they were up a ton.” Is it buy you as Shell oil plays, is everything oil projected to go higher at least in the short term. And you know… As you know Steve, I’m telling the audience to keep in mind, this is one of the most shortest sectors in the entire market heading into, you know, this week and for me I’ve seen almost all of these names. More than 20% of their float… I’ve seen as high as 45% of their float short. And that’s why you’re seeing some of these massive moves that went up 17, 20, 23% in one day.

Frank Curzio: A lot of these shorts are covering, but I guess… You know, the question on everyone’s mind is, how do we play it here? What’s the best way to play it? Because what you’re saying here Steve is that even without a conflict it could warrant another attack, or there is going to be conflict, which either scenario seems like all prices are probably going to go a lot higher from here, and this still depressed sector. What’s the best way to play it?

Steve Koomar: I like owning some of the Shell price in the US, the ones that I liked, are the very lowest cost producers in the sector. I like being in the Permian and I like having the lowest cost producers in the Permian that have low debt. And I liked being in the Marcellus for gas, and once again, low cost producers, low debt. And, the reason for that is that prices, you know, you could be blocked, prices could stay relatively low. But if you are with a company that’s going to make high profits regardless, even if oil prices don’t rise significantly, then you’re going to win either way.

Steve Koomar: I think right now, the Saudi Aramco [inaudible] hanging over the market might be suppressing the share price of a lot of these companies, all of oil companies all around the world. Because investors have to… they’ll be getting ready to buy that at some point in time. So they might be making room for it, but wow, this sector is so cheap. I mean, I’ve never seen it this cheap. And you can buy… There are some companies out there and in the Permian, like a diamondback energy, symbolist Fang, FANG, it trades at a forward price earnings ratio of about 10 times. And, it’s expanding its production about 30% a year, and it will for quite some time going forward at that rate.

Steve Koomar: Something that has a very low debt. You don’t know if you’re going to make a home run on it in the next six months, the next year, the next two years, the next three years. But this is a company that at some point is going to pay off in a very big way, when we have those kind of numbers. When it’s trading that cheap and it has that kind of growth, it’s very rare that you’ll find this kind of opportunity. And it’s an under owned sector, at some point it won’t be. So, yeah-

Frank Curzio: Definitely makes sense.

Steve Koomar: That would be one of my [crosstalk 00:26:51].

Frank Curzio: Yeah. No, I love it. Moving away from oil, and this is going to be the last part here, thank you so much for coming on. I said this earlier, in short notice, I really appreciate it because it’s someone I want to get who cubs a sector of sense of late to give good information to my listeners. You are actually going to start writing for us, right? I wanted to talk to you about that, because everyone’s going to get much more familiar with you, which is hopefully a good thing, right? You got to get much more criticism and more emails, which is awesome.

Frank Curzio: But on a weekly basis, talk about that because I’m really excited that you got to be writing for us every week with the potential of starting a newsletter behind you. And I’m going to expect the feedback from everyone who’s reading your stories on curzioresearch.com. But talk a little bit about that because you know, we discussed what the story’s going to be about going forward. But, talk a little about that and get people excited, because they should get excited because a lot of your research is fantastic. It’s different from mainstream, what you’re hearing out there, and you also provide really good pics. So, maybe talk about some of the things that you may be writing about in the future.

Steve Koomar: There are huge geopolitical transformation going on across the world. A lot of its driven by this massive load of debt that… private sector debt that’s hit not just the United States, but really every major economy in the world. And the US is changing the way it operates in terms of trade, in terms of defense policy and all these things that have massive ramifications. And what I’ll be doing is, I’ll be going through just different topical issues that will affect, that will cause a radical change to the way the economies, and the financial markets are going to be working going forward. And highlighting a few investment opportunities that investors should think about. So I look forward to connecting with your readers during that time.

Frank Curzio: Now, really exciting stuff, Steve. Well, thank you so much for coming on. And guys, you’re going to hear a lot more from Steve going forward, as he will be writing for us at least once a week, once every two weeks. But it’s going to be really exciting stuffs, so definitely give it a read at curzioresearch.com. And Steve, I’ll talk to you soon buddy, again. Thank you so much for coming on.

Steve Koomar: Thank you Frank, I appreciate it.

Frank Curzio: Okay. It’s great stuff from Steve. He was going to be a paint that y’all not really hearing out there. I love this stuff so much, we’re going to deal it with some [Sb Meyer 00:29:15]. I have Sb Meyer writing for us, writing chat of the week, getting very positive feedback from that. Give you different levels where to buy different sectors, different stocks getting that’s a free guys on our site, go to curzioresearch.com just go there. And now Steve, is going to be writing for us as well. The macro part. A lot of people asking, “Hey Frank, could you give more of a macro view, or have people talk about it. Maybe start a newsletter about it.” Steve is great comes a macro, top down analysis.

Frank Curzio: Now as you break it down, different geographies, different markets, different sectors, but he’s filtering down to the stocks that you need to own. But he’s going to be writing for us on a weekly basis going forward. Again, a lot of guys that I’m interviewing an in Wall Street Unplugged, were trying to get on as contributors. This way we have more original content, and different opinions out there. Doesn’t have to be, you know, “What Frank Curzio says is Curzio Research.” No, I like getting different opinions. I like hearing the other side, especially when the research is detailed, and it’s really good.

Frank Curzio: You know, for me, I always love that. Because I always want to get it right, and by only get it right, you got to look at the risks. You got to look at the negatives, and a lot of times when people do research they just focus on the positives, and why I like the stock. But, it’s nice to get the negative opinion from someone on the other side, because they also do a ton of research on their end. But anyway, more and more people, you can see more original content on our site Curzio Research, this is all for free guys. Curzioresearch.com, Steve’s going to be writing for us, I’m very, very excited. Loved the interview.

Frank Curzio: But again, I always say this, and I mean it, this podcast is about you, it’s not about me. Let me know what you thought of that interview @ at Frank@curzioresearch.com. That’s Frank@curzioresearch.com. Now, let’s get to my educational segment. So I have oil, which is rising sharply, right? Take a little breather if they really went up, what was it? 12, 13 14%. But, it is rising after several drones attack one of the large processing facilities in Saudi Arabia, I just talked about that, with Steve. Knocked out 5.7 million barrels of production, or roughly 5% of global supply.

Frank Curzio: Now the Saudi, as I mentioned early is that 2 million barrels will come back online next week. I’m not too sure about that, I think it might take a little longer. Now, let’s put everything in perspective here. The Saudi oil processing facility is located near one of their biggest oil fields. To understand how big this is, our top five refiners process half, half the oil of this one processing facility. That’s how big of a deal this is. Now having gone through research, talked to my sources. Raymond James had some great research, and it’s saying the general rule in oil is the elasticity of oil prices to short term supply disruptions, is five X. What does that mean?

Frank Curzio: So a 5% disruption to oil supply should translate into a 25% increase in oil prices this is based on other times with the supply shocks or events like this. And this is the former, it’s not exact, it’s not, “This is going to happen,” but in the past it’s usually, you know… all price should have decided destructions are usually five X. So the fact there’s a 5% disruption to oil supply a few times that by 25% increase in oil prices. That simply means based on this model, all price should be trading close to 70 a barrel and not $60 a barrel. So it still could be upside, and that’s right now.

Frank Curzio: But the stories I’m reading, which are… it’s amazing, right? I mean people can say anything. Even they published stuff, even in major newspapers, that’s false now. I mean, how many attractions have we seen across the board? This is a Democrat, Republican thing they’re across the everywhere. It’s like, whatever it gets paid don’t worry about it. It doesn’t matter if it’s factual.

Frank Curzio: No, I’m not going to disclose when my sources or nothing, I mean it’s crazy out there. Anyway, oil prices are rising and now all the stories like, “The market’s down because consumer spending is going to get hurt from higher oil prices, and you… ” You’re going to hear how high oil price are terrible for the US and how they hurt consumer spending. Just when you read those stories, just know it’s all bullshit. Because the US is now the largest producer of oil in the world, surpassed Saudi Arabia, about two years ago. It was going to much strong a profits for our energy companies and may lead to more jobs if we have an escalating conflict, which seems very likely between Iran and Saudis.

Frank Curzio: Also when it comes to consumer spending, guys just pull up a chart, consumer spending since the 1950s and put that in Google, you’re going to have a bunch of charts and just look at it. It’s amazing, because as a secular upward trend, just go straight up. The steady trend, high, high, high, high, high, of 1950s to today. And during this timeframe, oil price had been incredibly vulnerable down to below $20, even probably down to eight $9 actually. If I go back to that far to the ’50s, and you’re looking at 120 and 125 oil prices, I mean all these conditions during that period, yet consumer spending straight up.

Frank Curzio: Some people say, “Well there’s… ” There’s no proof that shows that this hurts consumer spending or corporate profits, there’s just none. It sounds like it should, but just to, “Oh, I’m going to pay higher for… ” But it doesn’t stop people from spending on what they’re usually spending on, and what they like to spending on. It’s just not. If oil prices go to 150, yes, that’s a big deal, but you can’t tell me it’s $60 when… When, was it from? Pretty much, I think it was like 2000, don’t quote me on this. But 2008, nine, 10, 11, 12 around there, they were above 90 for how long. And our economy, you know, again, a lot of stimulus in there, and QE, and stuff, but oil prices were a lot higher than this. And we were okay, and consumer spending continued, it went higher, higher and higher.

Frank Curzio: So I love the stories that, “Now were [braces] I took another shock.. ” No, it’s not shocking the system. Actually, it’s good for the US because we’re a large producer, it’s going to add jobs. And if you’re looking at corporate profits, yeah, it could impact airlines, truckers, transportation companies who do not hedge higher oil prices, which most of them don’t hedge against higher oil prices. But if you look at an oil as a sector, it’s the worst component of the SP500 in terms of earnings, at least over the past two years. Now you’re going to see earnings rise, compared to SP500.

Frank Curzio: A lot of these companies are going to be producing like crazy because they can make a lot of money at 60, it’s more like 50, maybe like 45, 43 is a break even. Yes, in the Permian, in some areas it’s much cheaper, but on average it’s still around 50 bucks. Some people say, “I could drill for 29, 30 bucks.” You know, yeah, if one, two wells on average, it’s around 45. From what I hear from people who actually are wildcatters, that drill, have been drilling 30 years, that’s what they tell me. So I don’t know what you read or whatever, but that’s about the average cost.

Frank Curzio: So now, they can produce like crazy and we need the oil, everybody needs oil. So you’re going to see profits and next couple of quarters go up tremendously, and that’s affecting the SP500. So just ignore all the bs around it. “It’s going to hurt consumer spending IOL prices.” If it goes to 90, then make that argument not at 60 come on, give me a break, even at 70, no way. Not going to hurt corporate profits either, by these cubbies or hedge, they hedge fuel costs. They need to, because energy so volatile. So when you looking at everything that’s going on, how do you play this trend?

Frank Curzio: Well, you have to have exposure to oil, I mean, I have it in both of my newsletters. I have two really great companies, one inCurzio Research Advisory, the other end Curzio Venture Opportunities. One of the great companies that I have, which I love in the sector, was down 25% before this news, and went up like 10, 15% after and came back. And I think that’s only one of three losers out of the 19 stocks in the Curzio Research Advisory portfolio. I don’t want to say that because I don’t want everything to change. But, the performance is pretty good now, and we do well have a lot of winners, but oil has been terrible. But I still had exposure to that stock with a stop. And that’s important because we looked at it the last 18, 24 months, everything oil got killed.

Frank Curzio: Now, why am I saying you should have exposure to these sectors and not just oil, but look at gold, silver, you know, a lot of commodity, uranium. If you look at all these sectors, there’s so depressed that if that trend changes, you’re going to see massive, massive gains, which are going to add to your portfolio and help you beat the markets. You want to have a little exposure to it, getting one stock in each portfolio. And the one in CVO is you want absolutely fantastic, it’s dividend play, we’re first on it, it’s viper energy. I’ll give it away, since above the biopsy price, which are took profits over 100%.

Frank Curzio: What I love about that and CVO, because venture is a high price newsletter. For me, my job is to get into stocks that have massive upside potential. We limit our risk using stops, and you’re going to find a lot of the stocks that you’d never heard of where I’m traveling around the world to find the best ideas for you. And this one was one of them, where Greg, I used to work with the streets, said, “Hey take a look at this company, and this is like three years ago, and it’s great because the stock went up 80, 90%. And then I saw four or five on the newsletter recommend it.” And say, “Oh, this is a great company.” When we already have 90%, that’s the point of this newsletter, get in before everybody else.

Frank Curzio: So we took profits, sold half, and we’re still up nice on that position. But you have to have exposure to these sectors, because when the tide turns, these are names and called one x to three x in a six to 12 month period, because these industry is just so depressed. Even though you’re sitting there and saying, “Wow, this has a loss.” Well, get a little exposure to these industries, right? You’re going to have more exposure to growth. Growth has been, you know, alive. I know there’s a week, last week when all these stories came out about, “Values back.” And everybody’s going into these stocks that have gotten crushed for three, four, five years in a row. Look, you need a lot more evidence guys, not just algorithms jumping into wherever they see they can make money right now.

Frank Curzio: So growth is still the play, still going to do well going forward, especially with low interest rates. The issue of allocation even to sectors that are under the performing, because you’re going to find really cheap stocks in it. And when that turns, when that tide turns, things get better. These things surge on those stupid depressed levels, which you usually see in highly sickle industries like gold, silver, uranium and, oil and gas. Now names, I’d be looking at now are Patch Pioneer, why? Because they have tons of access to the Permian, they’re going to make the most profits because the cheapest to drill there. Accidental, also has exposure to the Permian, where there the biggest exposures to the Permian?

Frank Curzio: Chevron Exxon, of course, but as you know, they diversify, they have upstream, downstream, and just tons of operations. So not really, you know, the best play there. Apache and concho resources, Apache assembles, APA, concho resources, CXO, to more companies have ton exposure in terms of percentages in the Permian. In terms of the acreage and how much they’re producing in relation to their total production. So even though Exxon and Chevron Exxon have massive exposure, I mean you go to Chevron Exxon, it’s still probably whatever, five, seven, 10… less than 10% of overall revenue. When it’s 60, 70% a lot of these other companies, which a smaller, because they really focus on the Permian.

Frank Curzio: Look at smaller names that have Permian exposure, parsley energy, Callon petroleum, Callon’s up 17% on Monday. But make sure you do your homework on these names. I’m throwing them at you, but you need to do homework. For example, there are only a few out of the 22 counties in the Permian, West Texas where you can produce oil for less than $40 a barrel, even $35 a barrel. That includes, Glasscock, Midland, Martin, Howard, Upton, Reagan, how do I know these? Because I visited every single county in these areas. And I want to [inaudible 00:40:41], and also went to Eagle Ford, knowing which are the best areas, where is everybody focusing on? That’s prime.

Frank Curzio: So it’s not the whole entire Permian, it is 22 counties, less than a half are very profitable, you say, “We have Permian exposure.” Ask, “Where?” Because that acreage is probably where two x to four x more if it’s in Midland, Glasscock, Martin Howard and those counties compared to the county’s really on the outskirts of the Permian, mostly on the east side. The West just started to drill too into New Mexico.

Frank Curzio: Or, so you want to look at leverage, see how much debt these companies have and when it’s due, they’re going to have that at presentations. It’s not, “Oh, I got to dig through this.” No, just go to their presentation, they better have that schedule. Especially if they don’t, then I’d worry. But most of these companies have their debt schedule of how much they owe, when they owe the most, what years. And they’ll have like a, you know, just a bar chart for whatever 15, 20 years, how long they’re taking that out for. Look at the leverage, look at how much is due. Even if they have a high debt load, maybe they don’t have to pay anything meaningful for three, four, five years and this next year going forward, they can make a lot of money from this.

Frank Curzio: Look at short ratios, I said Callon’s up 70% on Monday because mostly of short covering, over 40% of their float is short, which is insane. So I really liked this name, I would wait for a pullback since I’m sure the shorts may look to reestablish that position when market settles down, if it sells down. But I was like companies like Air and Environment EVNV, since they’re one of the largest manufacturing military drones, including counter drones for government. I think airlines are by here on this pullbacks is most hedged oil. Well, oil production is hedged, so they’re paying a fixed price for it over a certain amount of time. I still like Delta a lot, which is incredibly cheap and growing much faster than the overall market.

Frank Curzio: But the point is you need exposure to the sector. Don’t go all in and don’t think you missed the boat because we see prices rise this week. Because if the tensions escalate and we see a war between two the largest oil producing nations like Iran, Saudi Arabia, oil prices will skyrocket from these levels. Also, we’ll likely see Russia and other OPEC members hold off on producing more oil. Since the Saudis don’t want anyone to take market share and they all love higher prices. Really OPEC, it’s a cartel, there job is work together to generate the most profits for themselves. They had total control of this industry before revolutionize Shell in the US and now we are a large producer.

Frank Curzio: If you looking, that’s why these guys increased oil production drastically in 2015 and 16 which pushed the price of oil under $30 a barrel briefly. Well, US Shell companies, at least most of them can’t make a profit. There’s a lot of competition in this industry, remember, these are corporations, this is how they make the most profit and they going to do in their best interest. Anything in their best interest, take advantage of this. So higher oil prices should be around for a few months, and if tensions escalate, prices along both oil stocks would definitely surge. And I think there’s a very high probability that we will see escalation, why? Because this is not a rebel attack, which some people suggested, this was planned and done with clear precision. There was 17 different strikes which targeted 14 storage tanks, and three processing trains.

Frank Curzio: And each tank that was hit, the punctures from the drones, they in the same exact position. Think about that for a minute. Say you want to launch an attack on a wind farm, just say, and you want to destroy 10 wind turbines. Each turbine was hit in the same exact position, whether there’s 15 feet from the base or whatever. I mean, it’s coordinated, it’s amazing, there’s precision there, this is professional. This isn’t rebels throwing a grenade and running. And looked at a satellite imagery, which is everywhere. When look at the satellite they’re going to have to respond to this or they’re going to look weak.

Frank Curzio: Now, if tensions do escalate, then you’re going to see oil prices go a lot higher, a lot higher. And if I’m wrong, and tensions do not escalate, which could be a possibility considering you have to throw this in this, this could have been an inside job. Just throw it out there, consider attack was absolutely perfect. They knew the exact targets to hit, or which ones make the most damage. And despite this huge massive attack, not one person was injured. If this is a real hostile attack, what do you care about when are you hitting it? You know, it’s not just as to disrupt the supply, it’s to really hit them hard. And who knows, whether it’s management team or whatever, who’s on the facilities at the time. I mean, this was done when nobody got hurt. I don’t know.

Frank Curzio: Anyway, which is a great thing and nobody got hurt. Just surprising. But, if you’re looking at this, you’re looking at the sat… just the procedure behind this was absolutely amazing. Could lead to inside job, which means maybe there’s not going to be escalation, especially in tensions. So anyway, if we do see tensions or a price is to go higher, if not, if I’m wrong, tensions not escalate. And we, meaning OPEC and the US are able to make up this deficit that we just lost over 5% of global supply. I don’t think you’re going to see a massive pill bag in any of these, or related names. Even after the recent surge considering… I mean, if you look at the performance of these guys, they’ve done a ton, they’ve done a ton. So, now, 50% plus over the past 18 months even after they move higher.

Frank Curzio: So from a risk reward perspective, definitely get exposure to the sector, just like you would do for gold, uranium, other depressed secular sectors. Along with having exposure to tech, biotech, small caps, banks, other sectors, because as this is turning, these things are still super depressed. And if you see oil pushed through 70 to 75, 80 these stocks are very, very undervalued. Even at $6 oil prices right now, and now you have a little bit of momentum behind them, and I don’t think this is a problem that’s going to go away anytime soon. So, definitely get exposure to oil, I shared some names with you.

Frank Curzio: Again, do your research on those names, but those are the ones with Permian exposure that should do the best as oil prices continue to go higher. So guys, a lot of stuff here on oil covered extensively. Thanks to Steve, for coming on in short notice it was great. That’s it for me. Thanks so much for listening. I’ll see you guys in seven days. Take care.

Frank Curzio: The information presented on Wall Street unplugged is the opinion of its hosts and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility. Wall Street unplugged produced by the choose yourself podcast network. The leader in podcasts produced to help you choose yourself.


Editor’s note: Steve Koomar is one of Frank’s most popular Wall Street Unplugged guests… and now, he’s a Curzio Research guest commentator. If you missed it earlier today, be sure to check out Steve’s article, My favorite way to play rising oil prices.

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