A rare, perhaps short-lived, opportunity is shaping up in the energy sector.
WTI and Brent crude prices are the focus of attention while the Iran conflict muddles through uncertainty. Daily, the price per barrel has been trading in the highs $70s to $80s for weeks now.
If anything, traders are waiting for the Strategic Petroleum Reserve (SPR) to run dry before they make the price of crude an object of intense speculation again. That will provide its own profit opportunity.
In the meantime, diesel is soaring:
Diesel crack spreads are topping $100, a massive spread over the cost of crude oil, and one with significant economic impact that’s not seen at the gas pump (Source: ZeroHedge)
When it comes to petroleum products, most Americans think about the price to pump gas into their cars or the shock and awe that happens when they open their heating bills.
Diesel bears a cost, hidden to the average consumer.
As diesel prices soar above other oil costs, the price of everything from manufacturing to shipping is rising:
- Trucking & Logistics: Fuel surcharges on freight and shipping are already rising, affecting delivery costs for retailers and manufacturers. With higher diesel prices, this may just be the beginning.
- Agriculture: Farmers use diesel-powered tractors and trucks for planting, harvesting, and transport, so food prices are likely to rise, as seen in past fuel shocks. That’s on top of the loss of fertilizer from the closure of the Strait of Hormuz.
- Construction & Manufacturing: Diesel-powered equipment and delivery trucks increase construction and production costs, which could affect economic growth and the AI buildout.
- Public Transport: Buses and trains run on diesel, so transit fares and service costs may increase, burdening lower-income consumers.
In time, higher diesel prices will show up as, gasp, inflation. That’ll hurt. We never got over the pandemic-inspired bout with inflation.
For individual investors, there’s an opportunity to help take the sting out: Energy companies with exposure to diesel are the smart play right now. They’ll benefit from this unusual spike now, whether or not traditional oil and gas prices catch up.
Today’s Grey Swan Pro recommendation is a U.S. energy company with unusual flexibility to expand its diesel operations when margins are fat. When conditions normalize, it can switch production back towards gasoline or jet fuel, and lean into whichever part of the oil market offers higher returns now.
~ Addison
P.S. Grey Swan Live! returns this week with Jennifer Stevens of International Living.
If reviewing our time during the pandemic has driven any idea home, it’s the idea that you also need your own personal bolthole. And that the safest place to bolt may be in a different country.
In our first chat, Jennifer reviewed the top global real estate markets. We’ll take a look at where the best opportunities are, whether you’re looking for a second place to live part-time or full-time, or whether an investment property overseas – which may eventually become a retirement or bolthole – is best for you.
But that’s not all!
On Friday, we have a special event – a conversation with our friend Nick Buhelos at Prime Corporate Services. Nick can show you how to best structure your investments to reduce your tax liabilities in the U.S. – a great idea whether you want an intrusive government like the one during the Covid-era or not.
