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Josef Schachter: Oil Prices Break US$100 Again, Here's What's Next
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Oil Prices Rebound Above US$100 WTI—“War Premium” May Be Underestimated
Oil prices have surged back above US$100 WTI amid ongoing Middle East conflict. Josef Schachter argues the market is still underestimating how long the “war premium” could persist.
He ties recent price action to overlapping risks, including:
- Disrupted shipping routes
- Uncertainty around US naval convoy protection
- Renewed pressure around key chokepoints—especially routes linked to the Strait of Hormuz and the Red Sea (including Houthi activity near Bab el-Mandeb)
Oil Market Drivers and the “War Premium”
Six-month recap
- Oil fell during peace-talk optimism, then reversed sharply.
- The move was described as rising from roughly the ~$70 range to about $101.5 (about +11–12% over the two-year term referenced by the guest).
Middle East escalation details cited
Schachter links the price shock to a sequence of developments, including:
- Iran-backed attacks involving missiles and strikes on regional US bases
- US retaliation targeting military assets
- Attacks on oil shipping/tankers (with eight or nine tankers cited as impacted), raising fears of continued disruption
Political timing
Schachter frames the conflict as linked to US domestic politics, suggesting Iran may be seeking to keep the war prominent in the news cycle ahead of the November 3 election, influencing public sentiment and voting.
Supply Security, Shipping Uncertainty, and the Strategic Petroleum Reserve (SPR)
Persian Gulf flow uncertainty
A major question is how much oil is still moving through Persian Gulf routes under the US convoy system.
- The US Energy Secretary previously suggested ~14–15 million barrels/day were moving via convoy protection.
- Schachter argues there is no reliable updated government data to confirm current volumes.
US SPR depletion
Schachter notes the Strategic Petroleum Reserve is at its lowest level since 1982, with the cited figure falling to 285.4 million barrels, sharply down year-over-year.
He argues SPR draws are being used to support:
- Domestic supply needs
- Export market support
Refining economics (“crack spreads”)
Schachter emphasizes that even if crude benchmarks trade near $100+, refiners’ margins on diesel/jet fuel can be much higher due to tight refining capacity.
Key points:
- Refinery utilization is described as extremely high (citing ~97.8%, up from 94.9%).
- Limited new build capacity and refinery closures create a squeeze on supply while margins expand for remaining capacity.
- He argues the refining bottleneck supports strong dividend yields among refiners.
Who Benefits: Canada, the US, and Selected Global Players
US: production and export strength
Schachter highlights that the US is both producing more and exporting significant volumes, positioning the US as a “security of supply” winner.
Canada: bullish story
He argues buyers will prioritize secure supply and that Canada is positioned to benefit.
Highlights include:
- Canadian interest in expanding LNG, including mentions of potential additional FID decisions and regulatory streamlining to speed approvals
- A long-term energy outlook with upward revisions to price assumptions (shifting from a historical $80 WTI forecast to $90 next year, in his view)
- A belief prices could exceed past highs, referencing 2008 (~US$147)
Schachter also suggests stronger oil prices could support a stronger Canadian dollar—though not necessarily returning to old parity levels.
Trade-war and currency angle
He links expectations for higher oil prices to currency strength for Canada, but cautions it may not mean a full return to prior parity levels.
China’s Role and “Shadow Fleets”
Schachter argues China absorbed the earlier price shock by:
- Drawing down reserves
- Reducing imports when conflict started
Now, as refined-product shortages rise, China is reportedly allowing “teapot” refineries to buy discounted Russian (and potentially discounted Iranian) crude and profit from producing and exporting refined products—contributing to ongoing global price pressure and strong sector earnings.
Demand Outlook and Seasonality
- The market is described as moving through shoulder season (September).
- Demand typically rises in winter months (Nov–Mar).
- If Middle East disruptions persist, inventories could tighten further and keep prices elevated.
Natural gas/LNG note
For natural gas/LNG, Schachter notes that countries with limited storage can experience spot-market urgency, pushing cargo prices sharply higher (he cites examples in Asia such as Bangladesh paying a premium).
Investment Thesis: Commodity Supercycle + Timing and Stock Selection
Commodity supercycle view
Schachter’s broader thesis is that commodities are entering (or already in) a long commodity supercycle, driven in part by underinvestment and long lead times for new capacity.
- The cycle could extend into the mid-2030s
- Oil could remain above major historical benchmarks
Oil & gas equities strategy
He argues the sector is still “cheap” using valuation metrics, and recommends focusing on:
- Value relative to reserve life and cash flow
- Using reserve categories such as PDP, 1P, 2P
- Comparing against cash flow multiples
- A diversified approach across:
- Natural gas and LNG exposure
- Oil producers
- Oil sands
- Service companies
- Adding speculative upside names where appropriate
Rotation risk
Schachter expects normal market rotations:
- If oil falls (e.g., due to political de-escalation), oil equities could pull back
- Meanwhile, other parts of the market may become more attractive again
Still, he favors natural gas/NGL/service areas as relatively attractive “right now.”
Canada Policy and Infrastructure Catalysts
Schachter points to a shift away from an alleged prior federal “anti-fossil-fuel” stance, saying the new direction aims to speed up approvals.
Infrastructure/project themes
He flags potential catalysts such as:
- TMX expansion to target higher throughput
- Potential export and domestic routing changes (including ideas like routing supply to Ontario and expanding west coast capacity)
- Expanded commodity development opportunities, including critical minerals:
- Nickel, copper, graphite/graphene, lithium
- Related mining opportunities
M&A and a Specific Company Example
Tamarack and Headwater (Clearwater “clear water play”)
On Tamarack and Headwater, Schachter views the merger as technologically ahead of the curve, citing:
- Water flooding success
- Declining decline rates
He expects investors to reward the scale with a higher multiple and argues that continued M&A will help companies position for:
- Capacity expansion
- Operational improvements
He implies consolidation can unlock institutional liquidity.
Presenters / Contributors
- Charlotte Mloud (investingnews.com, interviewer)
- Joseph Schachter (Shaker Energy Report, president & author)