Old School Energy

The focus in this thesis is the oil sector...

Despite efforts to gradually reduce its use, oil remains by far the most important commodity in the world, and it is no exaggeration to say the world economy is still reliant on it.

Oil prices got smashed in early 2020 by a combination of a mistimed supply dispute between Saudi Arabia and Russia and the crushing of demand by the pandemic. Oil has recovered a good part of its prior price level but the destruction to the industry has been significant.

The US shale plays, the most important source of new demand in recent years, may only partially recover, as they were overleveraged going into the problems and had to shut wells during the pandemic, which may not reopen.

We believe the oil price will fully recover and then some, perhaps a lot more, as the world economy recovers, since OPEC suppliers need higher prices, and since the unconventional suppliers may not recover to former levels.

Among the beneficiaries of the problems in the industry are the oil supermajors, which have the strength to weather the difficulties, and the resources to take advantage by acquiring distressed assets at low prices. Many of the smaller players are much weakened.

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