What's going on?
Iran has a long-term plan to surround the Saudis. It's a matter of raw geography. That is, Iran is located northeast of Saudi Arabia. Plus, Iran has a well-entrenched presence in Syria and Lebanon, to the north of Saudi Arabia.
Saudis’ primary motivation in crashing oil prices last November was to harm Iran. In other words, low oil prices are not about hurting Russia because of Ukraine; nor slowing the advance in North American fracking. The Saudi idea is to squeeze the bank accounts of the Mullahs in Tehran.
Now we see the Iranian blowback. Iran-backed rebels have knocked out the former government in Yemen, which was friendly to both Saudi Arabia and the U.S. The Saudis have a full-scale religious war on their southern border, with opponents fully backed by Iran.
What comes next?
We're in the midst of a historic breakdown of nation-states across the Middle East. Former map lines that came out of World War I -- drawn by Great Britain and France, after the collapse of the Ottoman Empire -- are being erased. For now, modern notions of the nation-state are near irrelevant. Tribalism is triumphant.
Iran is working to become the regional hegemon; certainly as the U.S. withdraws. In a way, it also explains Iran's major effort to build nuclear capabilities -- the race for a Persian atom bomb, notwithstanding "negotiations" ongoing over delaying or deferring the actual event.
Meanwhile, we live with low oil prices, certainly compared with this time last year. Too many barrels; not enough demand. Can it all change? And how fast? And in what direction? Is it time to begin buying into many a beaten-down oil or oil service play?
The U.S. rig count has plummeted due to a drought of new drilling capital. Looking ahead, there are indications that U.S. oil output may cease growing in the next two or three months. The fast-climbing U.S. production curve will flatten out.
The U.S. rig count has plummeted due to a drought of new drilling capital.We'll see, right? Keep in mind that U.S. oil output was (note past tense) the world's key "swing" production over the past few years. That's all about to change.
Yes, we saw increased oil flow from Iraq last year, too -- which is problematic in the near future. Libya output rose last year as well; and has fallen in recent months. Civil wars will do that to an oil producing region.
In other parts of the world, Russian oil output is problematic. Brazilian offshore oil isn't growing nearly as fast as optimists expected a few years ago. Canadian oil sands are flowing, to be sure, but constrained by costs and transport bottlenecks.
All in all -- balancing the risks -- I'm inclined to think that there's upside to energy investing just now. More upside than risk of a major downward crash. The key is to buy into well-run oil plays, oil services and equipment plays.
At current prices interesting stocks are Schlumberger (SLB: NYSE), Halliburton (HAL: NYSE) -- soon to merge with Baker Hughes (BHI: NYSE) -- Weatherford (WFT: NYSE).
Big ones, like Chevron, Shell or Total are also good plays for time being.