Whenever things heat up – or cool off – in the natural resource markets, the first man I turn to is Rick Rule, CEO, president and director of Sprott U.S. Holdings, a securities brokerage and asset manager specializing in natural resource plays.
Rick and his team have decades of experience and success investing – and speculating – in oil and gas, mining, forestry, agriculture and agriculture energy. He is a frequent – and highly rated – speaker at many of our conferences.
I interviewed him last week about the recent volatility in the oil patch. His thoughts, as always, were both insightful and provocative. Here are a few of them:
Alex: Rick, oil prices have plunged close to 40% from the mid-June highs. Why?
Rick: I think it’s mostly demand-related. North Americans tend to think that because we have doubled our own production we have an inordinate impact on worldwide supply. And, sure, we’ve had an aggregate increase in production of 4 1/2 million barrels a day. That’s an amazing testimony to technology and free markets. But the world market is 95 million barrels. Our extra production doesn’t offset the decline in supplies from Mexico, Venezuela, Ecuador, Peru, Indonesia and Iran, countries where the national oil companies have diverted free cash flow from sustaining capital investment to politically expedient domestic spending programs, including – ironically – subsidizing domestic energy. So the “culprit” in this situation is softening demand.
Demand growth in China has slowed. In Europe it’s negative. In Japan and North America it’s flat. That’s partly because the