ARTICLES

Rising Oil

The oil price remains a major factor in the world economy, determining inflation levels and impacted directly by the growth of gross domestic product (GDP) in first world countries. Viewed as a whole the world economy is still very heavily dependent on oil despite the move towards renewable energy. Any move towards accelerated growth is immediately reflected in rising oil demand.

The world’s largest exporter of oil is Saudi Arabia which completely dominates the Organisation of Petroleum Exporting Countries (OPEC). Saudi Arabia is estimated to have proven reserves of around 270 billion barrels and can continue producing oil at current levels for at least the next 50 years. It can produce oil at a cost of about $4 per barrel which compares with the US shale oil cost of production which is at least $35 per barrel.

America consumes about a quarter of the world’s oil production despite the fact that it has only about 7% of the world’s population. This has led to the oil-for-security deal between Saudi Arabia and America which has been in place since the end of World War II. In terms of this deal America has guaranteed Saudi Arabia’s security in exchange for receiving the oil which it needs.

In recent years, the oil-for-security deal has come under strain especially since the 2019 Iranian drone and cruise missile attack on Abqaiq oil plants and Khurais oil field which temporarily cut about 50% of Saudi Arabia’s oil production. Then President Trump’s response was considered insufficient and half-hearted. In addition, the rise to power of Prince Mohammed bin Salman (MBS) since 2017 as the de facto dictator in Saudi Arabia has impacted on relations. MBS is a 37-year-old who has become completely autocratic in his rule.

It is also important to understand the price of petrol is a key element of Biden’s popularity in America and the price of oil is a major factor in enabling Russia to continue prosecuting its war in Ukraine. For these reasons, following the start of the Ukraine war, President Biden went to Saudi Arabia to negotiate lower oil prices.

For the next year oil prices came down sharply with North Sea Brent falling from over $120 per barrel to around $72. Since July this year, however, oil prices have been trending up again and Brent has now reached almost $94 per barrel – up more than 30%. Consider the chart:

One of the major reasons for the rise in oil prices has been the shift in investor perceptions about GDP growth in the US and China. Over the past few months, the idea that the US would descend into a recession has faded as inflation fears have subsided. Interest rates are now thought to have peaked, and the next move is expected to be downwards.

At the same time, economic growth in China has perked up with retail sales coming in at 4,5% year-on-year, well above analysts’ expectation. Chinese oil refinery runs reached an all-time high of 15,23m barrels per day indicating that the demand for petroleum was rising rapidly.

As the world moves back into growth, the demand for oil will rise and with it the price. Ultimately, a rising oil price would cause world inflation to rise and growth to decline. It will also help Russia which is a major exporter of oil. But these trends will probably come too late to significantly impact Biden’s 2024 presidential campaign and they will almost certainly be too little, too late for Putin.

Here in South Africa, the rising oil price comes at a bad time when mining production has been falling and the economy is battling with very high interest rates. For the ANC, this is just more bad news to add to their litany of mostly self-inflicted problems in the run-up to the 2024 election.

We expect that oil will continue to move up in the coming months as growth rates around the world strengthen.  

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11^th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale

Choosing Winners

We are often asked how we go about selecting the shares to put on to the Winning Shares List (WSL). Right now, there are 102 shares on the list with 5 having gone down since they were added, 94 are up and 3 are unchanged. On an annualised basis, 24 of them are performing at above 100% per annum.   

As a private investor,

Kore Revisited

Kore (KP2) remains at once the most exciting and most risky investment on our Winning Shares List (WSL) at the moment. We originally added it to the list just over a year ago on 16^th May 2024 at a price of 20c. It subsequently rose to a high of 83c on 3^rd October 2024 and we published an article

Rand Strength 2025

The strength of the rand is both a critical and a complex issue for private investors on the JSE. Our currency is influenced by two primary forces:

1. Our local economy’s prospects
2. The rand’s role as a leading emerging market currency

These, in turn, are

Sibanye Revisited

In these uncertain times, when nobody really knows to what extent Trump will back down on the international trade war which he has initiated, many investors are moving into precious metals as a hedge against the weakness of paper currencies (especially the US dollar) and paper assets like equities and bonds.

The problem

Smart Local Investors

The last two months have been wild on the markets – mainly because of Trump’s ill-advised, on-again, off-again tariff policies. The issue now is:

Will this morph into a full-blown bear trend? Or is this correction almost over?

From his election victory on the 6^th of November 2024,

Jerome Powell

The Federal Reserve Bank (“the Fed”) is completely outside the control of the President and Executive Branch of the US government. The chairman of the Fed is appointed for a renewable 4-year term by the President. The President cannot remove the Chair without cause. The current chairman, Jerome Powell was appointed by Trump during his first term as President and reappointed by

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500

Liberation Day

Trump has done the unthinkable. He has deliberately engineered the collapse of the US and world stock markets in the nonsensical belief that somehow an international trade war will make Americans richer. Nothing could be further from the truth. His actions have taken the S&P down from its all-time record high of 6144.15 on 19^th February 2025 to Friday’s