Josef Schachter: From Boom to Bust, ‘Much Higher’ Oil Prices in 2026 & The Uranium Bull Case

Key Concepts

• Energy Supercycle: A prolonged period of high energy prices driven by sustained demand growth and underinvestment in supply.
• Decline Rates: The natural decrease in production from existing oil and gas wells over time.
• Free Funds Flow: Cash flow remaining after operating costs and capital expenditures, available for shareholder returns or reinvestment.
• Small Modular Reactors (SMRs): Advanced, smaller-scale nuclear reactors designed for easier deployment and potentially lower costs.
• Netback Pricing: The price of a commodity after deducting transportation and marketing costs.
• NAV (Net Asset Value): The estimated value of a company's assets minus its liabilities.
• Multiple Expansion: An increase in the valuation multiple (e.g., price-to-earnings ratio) applied to a company's earnings or cash flow, often seen during market euphoria.
• Takeovers: Acquisitions of one company by another, often driven by consolidation and the desire to control valuable assets.

Energy Market Outlook and Investment Opportunities

This discussion with Joseph Shear, author and president of the Shear Energy Report, provides a detailed outlook on the energy market, focusing on the long-term bullish case for oil and gas, with insights into uranium and investment strategies.

Short-Term Oil Market Dynamics (November 2025)

• Current Price: WTI is trading around $60 per barrel.
• Bullish Drivers:
  • Potential Russian oil export restrictions due to US sanctions on Rosneft and Lukoil, with secondary sanctions for buyers.
• Bearish Drivers:
  • Significant inventories in the US, Europe, and Asia.
  • Approximately one billion barrels in floating storage.
  • Near-term excess supply.
• Short-Term Price Forecast: Shear anticipates a potential price dip to $56-$58 per barrel for WTI by late 2025 or early 2026, driven by inventory builds reported by the EIA (Energy Information Administration).

Long-Term Bullish Thesis for Oil

• Demand Growth: Projected demand growth of 1 to 1.3 million barrels per day heading into 2026.
• Supply Constraints:
  • Global Reserve Decline: An estimated global decline rate of 5-6% annually necessitates the discovery and development of 5.5-6 million barrels of new production each year just to maintain current levels.
  • Underinvestment: A significant underinvestment in the sector, with estimates suggesting a need for $5 trillion over five years, while current spending is around $300 billion annually. Major oil companies (Exxon, Shell, BP, Total) are not spending enough to replace declines.
  • OPEC+ Production Capacity: Only Saudi Arabia, UAE, and Kuwait have the free cash flow to significantly increase production.
• "Pinch Point" and Supercycle: Shear believes a "pinch point" where demand significantly outstrips available supply will occur in late 2026 or early 2027. This is expected to trigger a sustained supercycle in energy prices.
• Price Projections:
  • Q2 2026: $70 per barrel WTI.
  • Q4 2026: $80 per barrel WTI.
  • Outlier Years (end of cycle): Potential to exceed the 2008 peak of $147 per barrel, with projections of $150-$160 WTI.
• Historical Precedents:
  • 1974-1981 Supercycle: Driven by Japan's export boom and increased energy consumption. Oil prices rose from $2.5 to $36, and oil and gas indexes increased 15-fold.
  • 1999-2008 Supercycle: Driven by China's economic growth and increased demand. Oil prices surged from around $106 to $147.
• Investment Upside: Companies with good assets, exploration upside, strong management, and solid balance sheets could see significant returns, with potential for "five to ten baggers" (stocks increasing 5-10 times in value) by 2030. Companies are expected to trade at 5-10 times their current valuations if prices reach $150-$160.

Underinvestment and Free Funds Flow

• Magnitude of Underinvestment: Estimates suggest a need for $5 trillion over five years, with current spending falling short by approximately $200 billion annually.
• Free Funds Flow: Essential for reinvestment in exploration and development. In Canada, this flow is often directed towards normal course issuer bids (stock buybacks) and dividends, with a strong preference from investors for both.

Time Lags and Infrastructure Challenges

• Exploration to Production Timeline: A significant lag exists between discovery, investment, infrastructure development, and actual production.
• Infrastructure Bottlenecks:
  • Pipelines: Essential for transporting oil and gas to market. Examples include the TMX pipeline in Canada and the need for LNG pipelines.
  • LNG Facilities: Crucial for exporting natural gas. Canada's LNG Canada facility is expanding, with potential for further trains by 2028-2029.
  • Offshore Development: Projects in Guyana and Brazil face logistical challenges in bringing production to market.
• Regulatory and Environmental Approvals: These processes are becoming longer and more complex, adding to the time lag.
• Impact: These delays contribute to the sustained nature of potential supercycles, as new supply cannot come online quickly enough to meet demand.

Canada's Energy Position

• Resource Potential: Canada possesses significant oil and natural gas reserves, potentially ranking third globally.
• Production: Canada produces approximately 6.2 million barrels of oil per day, with SAGD (Steam-Assisted Gravity Drainage) projects from oil sands being a major contributor.
• Exports: Canada exports over 3 million barrels of oil per day, primarily to the US.
• US Imports: Canada is a major supplier of heavy crude to US Gulf Coast refineries, which often import it to blend with lighter US shale crudes.
• Political Support: A shift in Canadian government policy towards supporting resource development is seen as crucial for unlocking Canada's potential as a resource superpower.
• First Nations Involvement: Increasing collaboration with First Nations communities, who see opportunities for ownership, jobs, and control over development areas.
• Natural Gas Challenges: Canada faces issues with low domestic natural gas prices, sometimes negative prices, and a lack of sufficient takeaway capacity. LNG projects are seen as a solution to improve pricing and export opportunities.

Peak Oil Thesis

• Shear is not a subscriber to the "peak oil" thesis, citing technological advancements like fracking and oil sands extraction that have unlocked previously inaccessible resources.
• Projected Demand: Demand is expected to reach 110-112 million barrels per day by 2030 and potentially another 4-5 million barrels by 2035, primarily driven by non-OECD countries.
• Technological Innovation: New technologies are continuously being developed to extract resources from deeper, more challenging environments, similar to advancements in gold mining.

Investment Strategies and Opportunities

• Diversification: Investors are advised to have exposure to oil, natural gas, and the service industry.
• Company Profiles:
  • Dividend-Paying Companies: Popular in Canada, offering yields of 7-8% (e.g., Freehold Royalty, WhiteCap Resources, Surge Energy, Alvo Petro).
  • Growth-Focused Companies: Those prioritizing production growth over dividends.
  • Small-Cap Opportunities: Companies with potential for massive growth in production.
  • Service Sector: Companies providing drilling, completion, and fracking services are expected to benefit from increased utilization and pricing.
  • International Operations: Canadian companies operating in regions like Trinidad, Colombia, and offshore Thailand.
• Valuation Metrics:
  • NAV Discount: Identifying companies trading at a discount to their Net Asset Value.
  • Multiple Expansion: Anticipating higher valuation multiples as commodity prices rise and cash flows increase.
  • Takeovers: Expectation of significant takeover activity as larger companies seek to consolidate assets in promising plays.
• Specific Company Examples:
  • Birchcliffe: A natural gas producer with a $9 one-year target and a $25 bull market peak target.
  • Freehold Royalty: Royalty trust yielding 7.8%.
  • WhiteCap Resources: Paying a 7% dividend yield.
  • Marin Energy: Offshore Africa, with a 10.8% yield.
  • Surge Energy: Paying a 5.2% dividend yield.
  • Alvo Petro: 8% yield.
• Research Resources: Shear Energy Report (www.sharcenergyreport.ca) and Ion Energy (Substack) for macro and company-specific analysis. A discount code "PGR100" is offered for listeners.

Geopolitical Risks and Energy Markets

• Vulnerability of Supply Routes: The Strait of Hormuz, Red Sea, and Strait of Malacca are critical chokepoints vulnerable to piracy and geopolitical disruptions.
• Impact of Geopolitical Shocks: Historical events like the Iranian Revolution (1979) and the invasion of Ukraine have demonstrated the potential for geopolitical challenges to drive significant price spikes.
• Venezuela's Potential Impact: A regime change in Venezuela could lead to a significant increase in oil production (2-3 million barrels per day), potentially impacting Canadian exports due to transportation advantages to the US Gulf Coast. This underscores the need for Canada to expand its export capacity, particularly on the West Coast.

Potential Derailers of the Bullish Thesis

• Trade Wars: A prolonged and severe trade war, particularly between the US and China, could lead to a global recession, significantly dampening energy demand.
• Global Recession: A deep economic downturn would negatively impact energy consumption and prices.

Price Bifurcation and Crude Grades

• Price Differentials: Different grades of crude oil will always trade at different prices due to processing costs, transportation, and quality.
• Heavier Crudes: The global trend is towards heavier crudes, which are more expensive to process and transport, potentially leading to wider price differentials between light and heavy grades.
• Cost of New Barrels: Each new barrel of oil extracted is becoming more expensive due to the need for new facilities and deeper extraction, similar to gold mining.

Uranium and Small Modular Reactors (SMRs)

• Current Demand: Existing uranium production is insufficient to meet current demand.
• SMRs as a Demand Driver: The successful development, approval, and deployment of SMRs could significantly increase uranium demand, particularly for data centers and utilities seeking baseload power.
• Shifting Nuclear Sentiment: Countries like Japan and France are reconsidering nuclear power, and Germany is also contemplating it, which is positive for uranium.
• Exploration: Limited exploration spending on uranium is noted, contrasting with increased investment in gold and silver exploration.
• Investment Recommendation: Uranium is recommended as a component of a diversified portfolio, with companies like Cameco and NextGen in Saskatchewan being key players.

Conclusion and Investment Approach

Shear advocates for a contrarian investment approach: buying when assets are trading at a significant discount (e.g., 20-30 cents on the dollar) relative to their perceived normal market value ($80-$90 oil) and taking profits when valuations become excessive. He believes the energy sector is currently undervalued and poised for significant upside, with the potential for a sustained supercycle driven by demand growth and underinvestment. The key is to identify companies with strong fundamentals, strategic assets, and the ability to navigate the complex energy landscape.