When it comes to investing in the energy sector, Marin Katusa of Katusa Research is someone worth listening to. Here’s a look at what he said about oil market trends during his keynote, and why he believes investors should be patient.
It’s thus no surprise that he spoke on multiple panels and delivered a keynote presentation at the recent Canadian Investor Conference 2015. Here’s a look at what he said about oil market trends during his keynote, and why he believes investors should be patient.
“Innovation through necessity”
Katusa started by outlining how the different wars that have happened over the last 200 years or so have affected commodity price trends. He explained that conflicts increase both the scarcity of resources and demand for commodities, also causing monetary inflation.
“The trend is your friend,” Katusa said. “Be patient. I think we are going to see more deflation in resources and innovation through necessity.”
Elaborating on the concept of innovation through necessity, he referred to a debate he had with Rick Rule in New Orleans about the US shale oil patch, recalling that Rule told him he thought shale oil would come offline.
“I said, ‘Rick, if you get the innovation, it is like a computer five years ago. Today they are cheaper, more powerful and better than they were five years ago. That’s what is happening in the shale patch,’” he told the audience. He added, ”yes, the rigs have come down, but the rigs they are using are better. So it’s like a computer system — you don’t need as many computers and servers as you needed 10 years ago because the ones you have today are so much better.”
Battle for market share
Katusa also shed some light on why so much oil is still being produced in the face of a dropping price.
“We are in an oil war where OPEC, led by Saudi Arabia, is about international market share. Shale oil is trying to get into that market share. And then you have the Russians. OPEC is not going to cut because they can’t, it’s about market share. And yet they are building nuclear reactors. So they are planning for the future, but they are maintaining their market share. That is what this game is all about,” he said.
Despite OPEC’s importance, Katusa reminded listeners that the US still matters, noting that the importance of Americans and the US dollar should not be underestimated. He also said that oil investors shouldn’t count out Canada, which has increased its crude oil exports to the US slowly but surely over the years.
“A lot of people forget horizontal fracking, [which] the Russians really did well with. It was the Canadian companies that did that in Russia,” he said. He also noted that the gift horse for Canadian producers in the oil war is Canada’s weaker currency — although producers in the country get a lot less per barrel of oil, the currency puts the price at about $63 per barrel for those selling in US dollars.
Patience is certainly a virtue and while it isn’t always easy to keep the bigger picture in mind, those interested in the oil space might want to consider Katusa’s perspective. All in all, he appears more optimistic than most about the fuel’s prospects moving forward.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.