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In this episode, Dave Wolcott together with Mike Alexander dives into one of the most overlooked yet powerful opportunities in today’s market: energy investing. While most investors react to geopolitical headlines with fear, this conversation reframes the narrative—highlighting how global supply constraints, decades of underinvestment, and steady demand have created a structural imbalance in the oil markets. As discussed, this isn’t a short-term spike—it’s a long-term shift that could take 12 to 18 months (or more) to normalize, opening the door for asymmetric opportunities that sophisticated investors are already capitalizing on.
But beyond macro trends, the real value lies in strategy. This episode breaks down how energy investments can play a critical role in a holistic wealth plan—offering not just cash flow, but powerful tax advantages that go beyond traditional real estate. From offsetting active income through intangible drilling costs (IDCs) to hedging against stock market volatility, energy emerges as a compelling, non-correlated asset class. For high-income earners, business owners, or anyone navigating large tax liabilities, this strategy could be a game-changer in building true, tax-efficient wealth.
Key Takeaways:
- Energy markets are experiencing a structural supply-demand imbalance, not just a temporary disruption.
- Investing in diversified oil and gas portfolios reduces risk while maximizing upside potential.
- Energy investments offer unique tax benefits, including the ability to offset active income and capital gains.
It’s really overall one of the structural reasons that we’ve identified energy and infrastructure as an overall asset class to focus on is because of the strong macroeconomic fundamentals with supply and demand. Most investors are watching the headlines coming out of the Middle East and thinking risk. But historically, moments like this have created some of the most asymmetric opportunities in energy.
Mike, when you zoom out, what are you actually seeing in the oil markets right now that most people are missing? Yeah, thanks for asking, Dave. Uh, you know, there’s definitely what you see happening now in the Middle East is really creating this massive structural supply imbalance in the oil markets. A lot of people don’t realize, but there’s still a huge demand for oil, even though we had a decade of underinvestment in the infrastructure. But there’s still upwards of over 100 million barrels of oil demanded a day in the world. And it’s mostly just concentrated in a few large parts of the world, like the Middle East, which probably holds at least 20% of the supply out there right now. So yeah, I mean, you think about it when you have this war going on in the Middle East, it’s created this huge bottleneck in terms of supply. Meanwhile, demand has held very constant, which has created this bottleneck. Yeah, the overall industry has really been lacking in terms of infrastructure, even back to the COVID era, right? Where there was just really no development going on.
So. All of this lack of infrastructure really kind of creates, I think, this huge bottleneck right now where not only are the prices going to go up, but if you wanted to just kind of turn up supply, you can’t just do that with a flick of a switch. Right, no, absolutely. And to your point, the underinvestment in the oil infrastructure has been huge. You know, for every, if you think about it, for every $10 increase in the supply of oil, that subtracts about 20 basis points from our GDP on an annual basis, which is massive, right? So there are huge implications to the price of oil rising. In fact, we’ve seen since, you know, since the war started, the barrel started, you know, the price of a barrel of oil is about $65. Now it’s, you know, hovering around 100. And it went as high as 120, probably a little over a week and a half ago.
So yeah, there are huge implications, which it has created, and actually it’s created opportunities for folks like our operator that go into the markets and create these funds for us. So there is opportunity as well on the other side of this. Yeah, and how should an investor, if someone’s never invested in oil and gas in the sector, really approach it? Yeah, I mean, so we have partnered with a very large institutional player that actually can go out and make investments, not just one oil well or two oil wells, but 20, 30, 40, hundreds of wells out there. Um, and from my perspective, that’s the best way to go out and make that type of investment because you don’t concentrate your investment in just one or two wells, but you actually have a diversified portfolio of wells that have a higher probability of generating oil.
That’s how I would recommend to our investors that they go out and invest. But would you see this timing as really trying to chase the market timing, right, and capitalize on geopolitical events right now? Or are there some structural advantages to investing as well? Yeah, no, I think this isn’t just a kind of one- or two-week hiccup in the oil markets. I think this is structural; there’s going to be a structural change, a change that has occurred. And ah, especially in the markets that are this big, it’s going to take probably 12 to 18 months before you even start to see any type of correction in the price of oil. So now this is here to stay for a while. Yeah, and I would add as well, it’s really overall one of the structural reasons that we’ve identified energy and infrastructure as an overall asset class to focus on is because of the strong macroeconomic fundamentals with supply and demand.
And obviously, we’re seeing a big spike in terms of demand right now and just not enough supply to fulfill that. But even outside of the geopolitical things, you know, we always have that in our favor. And then I think from an investment standpoint, it’s really not just about taking a particular opportunity and really chasing that and what’s the return on that. But it’s, you know, how can we add this to our overall strategy around reducing our taxes, around creating income today, not in retirement, but creating good, strong, passive income today? Um, and then, you know, really optimizing your yield. as well as hedging by getting into another asset class outside of the stock market that’s non-correlated.
Right, yeah, no, absolutely. mean, like, you hit the nail on the head; it’s really, this type of investment is great for those that, for a couple of reasons, right? You mentioned those that have passive income that they want to offset their taxes on, and also, in terms of just… getting that benefit from the tax, lowering your taxes on that first year from the IDC costs. So yeah, it’s definitely a huge, huge player. Yeah, and maybe just to elaborate on that, I guess from a tax perspective, if people haven’t invested in the energy sector yet, unlike real estate where you can take passive losses and we’re offsetting the passive gains, the uniqueness to energy is you can actually offset with active losses, which are really paper losses through intangible drilling costs that go against your investment and will reduce your overall income.
I find this is a great way to solve problems for people who are high-income earners, whether that income is business income or W-2 income. This also, by the way, can be a great offset to capital gains. So if you’ve got a big capital gain or some type of liquidity event, it’s a very good solution for that as well. Yeah, absolutely. And also folks that are trying to potentially move out of their 401k into a Roth, if they’re looking to do some type of conversion to Roth, it’s a great way to offset some of those taxes as well. If you’ve ever wondered how the wealthy use energy investments to reduce their tax bill while generating cash flow, we just answer every question on camera.
Go to PantheonInvest.com/energy to find out. For those of you that want to go deeper, we’re hosting a private briefing next week where we talk through exactly how this strategy works and the specific opportunity that we’re evaluating and how it could fit into your overall portfolio and tax strategy. If you want access to that, we’re just providing this to our loyal listeners with Pantheon on our YouTube and podcast shows.
So you can find the link down below on how to register for that webinar. Thanks for tuning in to our special solo series. If this episode sparked something for you and you’re ready to learn more, head over to holisticwealthstrategy.com and download a free copy of my book. You’ll also get access to our investor community, where we share exclusive educational content, new opportunities, and resources designed to help you accelerate your path to freedom. And if you want to take it even further, book a call with our team to learn about our virtual family office services or join our mastermind group where we go deep into building true generational wealth. I’ll see you on the next episode.