With the recent global tension and accompanying volatility in the oil markets, it can be tempting for even seasoned energy professionals to shorten their time horizon and focus on the next piece of news. Whether prices are high or low, it is precisely these moments when it can be most valuable to take a step (or possibly several steps) back and remind ourselves of the nature of our business.
Market volatility can make it seem that price signals happen in seconds or minutes, but the fundamentals don't work that way. Supply and demand adjustments happen over much longer cycles, mostly measured in years. It reminds me of one of my favorite axioms of the oil & gas business: The best cure for high oil prices is high oil prices, and the best cure for low oil prices is low oil prices. In other words, supply and demand will balance and are most responsive at the extremes.
I've attached an excellent interview from last week's Barron's. Charles Maxwell (currently with Weeden & Co) has been in the energy business since 1957. When someone with that kind of experience is willing to talk with you, it usually pays to listen. Enjoy.
Best,
-Shannon
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