In this episode of Industry Focus, Nick Sciple and Motley Fool contributor Jason Hall discuss the recent crash in oil prices. Get a breakdown of how oil prices are set and how they went below $0. What does the OPEC+'s agreement to cut 10 million barrels mean in this context? Learn the impact on oil producers, refiners, consumers, etc. They also talk about oil recovery and whether you should invest in oil stocks and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on April 23, 2020.

Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. It's Thursday, April 23rd, and we are talking Energy. Jason Hall is my guest today. Jason, what's going on?

Jason Hall: Pandemonium, my friend, pandemonium.

Sciple: It seems like every week on the show we're talking about something that either hasn't happened before or hasn't happened since my grandfather was a little kid, and I think we have another one of those this week with oil going negative on Monday for the first time ever.

Hall: Well, and not to leave the baby boomers out. Gasoline consumption just hit Vietnam War era levels in the U.S.

Sciple: Yeah. Wild things going on in the energy market; we're going to be talking about all that stuff today. First off, to just lead the show off and kind of level-set us. Tom Jones writes in from Davis, California and asks, he says, "Hi folks, I love the show. Would you explain how the USO ETF (NYSEMKT:USO) is affected by the price of crude oil futures? May oil futures traded below zero on Monday, while USO hit new lows. How should one be thinking about investing in USO? Is it reasonable to expect the price of USO and oil prices will rebound eventually?"

So, obviously, there's a lot packed into that question, Jason. But first off, the whole dynamic of oil futures and how they affect the price that we see quoted of oil in the market, I think, that's really important one. And that was behind this crazy sell-off that we saw in the May contract, on Monday, where prices fell from just below $20 a barrel all the way to almost -$40 a barrel over the course of the day. What happened there, Jason?

Hall: The sell-off turned into a payoff, right? I mean, that's essentially what happened. So, let's talk about the mechanics of oil futures, commodity futures. These are contracts that, if you hold the contract at the end of the contract date, then you're on the hook to take physical possession of that good. So, in this case, we're talking about West Texas Intermediate oil futures for early May delivery in Cushing, Oklahoma.

And the short version is, because oil demand has cratered so much -- we'll talk more about that -- and at the same time oil production has been far slower to respond. Producers just haven't been able to cut nearly quickly enough, the facilities around Cushing where their oil can be stored are basically going to be filled up by mid-May or either under contract for storage. So, a bunch of traders were left holding contracts and no access to storage and it got to a point where the only choice, as the trading day was coming close to ending, was to pay others to take those contracts to take delivery of the oil. And I think we hit like $38 a barrel at some point, to the negative, where traders were paying somebody else $38 to take the oil in May.

And how it ties to USO this ETF is important, because USO's goal, what it tries to do is it tries to mimic the price of U.S. oil, it tries to follow the daily spot price of oil. And historically, in normal markets, it's able to do that pretty closely using the futures market, trading futures, because they reflect the spot price relatively well, but this is one of those weird cases where futures weren't able to do that.

And a few of the things that I've seen out there was that USO, this fund, because so much investor capital has flowed into it with the idea that oil was going to rebound and they've invested that capital into futures, they were left holding, like, 25% of those contracts on Monday and it cost them a tremendous amount of money to exit, to roll those contracts. So, yeah, so that's it.

So, our colleague, Matt DiLallo, wrote up a pretty good piece, I think, yesterday it was published, maybe we can try and get that, and maybe the transcript, we can try and get that link to that article in there. But the short version is, USO is, kind of, stopping taking on new contracts. And, I mean, honestly it could cause the fund to fold; I think there's another fund out there that's wrapping up at the end of the month and they're going to liquidate the fund.

I don't think this is necessarily a good way to try to -- because there's still going to be so much more volatility. And the fund has essentially said, look, we can't [laughs] do what we do to track the oil prices right now, it just doesn't work because the way the market is responding. Eventually, yes, oil prices are going to rebound, it's going to happen. Eventually parity is going to return, economic activity is going to increase, oil consumption is going to grow, but USO, sadly, I don't think is a vehicle to capture that, Nick.

Sciple: Yeah, I couldn't agree with you more on the invest-ability of USO as an asset. Just to, kind of, tie-off some of the things that Jason said. So, the reason all this came to a head on Monday, as the way these futures contracts work, is they trade back-and-forth. There's a certain day, and in this case, I believe, it was Tuesday, where if you're holding the contract after that date, you have to be willing to accept delivery of oil at Cushing, Oklahoma when the contract comes due in May.

And in this case for the May contract, the date where that was taking place was the beginning of this week. And so, you had lots of people who just weren't going to be in a position to accept this oil and had to get out of their contracts. USO is one of these entities, you mentioned, how they have to roll their contracts from month-to-month.

Historically, they'll buy a futures contract, hold it for a period of time and then as the month comes to an end, they will sell that futures contract and then buy. So, in this case, they would sell the May contract and then buy the June contract in order to track the movement of oil. And in a typical oil market that works fine, however, in the market that we're in today, known as a contango market, where the futures price of oil is higher than the spot price of oil. Today, when USO rolls those contracts, they are structurally designed to lose money. They will buy a June contract that is significantly higher than the May contract they're selling. So, every time they roll those contracts, they're going to lose money as long as the market is in contango.

And these contango markets take place when there is this massive oversupply. There's really no demand for oil today, but demand will be higher in the future. And in these markets, these types of ETF funds, really, are structurally in a position where they can't track the market. I think, in 2008-2009 they got themselves into a similar situation, they were able to make it through. I would say, just generally across the board, whether it's USO or really any of these ETFs that purport to track some type of derivative product. Whether USO is trying to use futures, which are derivative products, to track oil or if you remember a few years back, XIV, which was using VIX contracts to try to produce an inverse of the VIX index.

Hall: This is volatility index for folks --

Sciple: Indeed. Yeah. And so, either of these, where the underlying product is really derivative, I think are very dangerous for investors to own and really puts you in a position where you can lose some money pretty quickly.

So, I would echo Jason's point of, I would not, under any circumstances, but particularly, when we're in this super-contango market we're in right now, USO and any of these kind of oil-related ETFs that try to track the price of crude oil are just structurally in a position where they're not going to perform well, given the way that fund is structured.

Hall: Right. Exactly. I mean, they're not just pegging the price of oil and oil goes up and that means that the price goes up and that means you make money. The way that they have to get there is so complex and so value-destroying in this [laughs] kind of environment. Yeah, don't -- yeah, just stay away.

Sciple: Right. And the managers of the fund have taken a number of steps this week to try to adjust the way they are holding, so it's less easy for these sorts of, kind of, carryon affects to take place. So, they have pushed out further onto the futures curve of the contracts that they hold. Because what happens as well is, you know, every oil trader in the market is aware of the mandate of this USO fund and when they're going to have to roll their contracts and that they represent such a massive subset of the overall holdings of these futures contracts. And so, people can front-run USO in these other funds to try to game what's going on in the system and make some cash and people do, do that.

And in this environment, the USO has tried to take steps to better track the returns of oil that they're trying to track and prevent other traders from being able to exploit the way the fund has to operate itself, you know, to generate some profits for themselves. So, really complicated what's going on here. Oil will come back over time, I just don't know that there's a really exciting way, at least through these ETFs, to invest in that bounce-back.

And even if we wanted to, Jason, maybe get your thoughts here, say the economy reopens, we don't know when demand comes back. So, even if everything reopens, we don't know when this oversupply situation could be corrected.

Hall: Well, I mean, that's the thing, right? So, let's talk about that. And I think what you have to remember is that this massive imbalance is going to have substantial carryon affects, right? You know, the economic recovery is going to happen far sooner than the oil market recovery, because of the massive amounts of oil that are still being produced above-and-beyond what the market is able to consume. I mean, here we are, where it's April 23rd, we know global oil demand is down probably 30 million barrels per day right now, maybe more, but somewhere that's a good kind of a middle target. And I mean, for context, that's all that oil produced by the three largest global oil producing countries in the world combined, right? That's the U.S., that's Saudi Arabia, that's Russia. You take the combined production, and we're essentially down what those countries produced on a given day last year. So, I mean, that's how massive this destruction is.

And structurally, a massive industry that's truly, I mean, it's picks-and-shovels and pipes and pumps and drills, it's not built to absorb those kinds of shocks, it just can't, it can't. You know, this is a massive 18-wheeler with a full load hitting an icy road at 80 miles an hour, it can't slow down quickly enough, it just can't. So, that's the challenge, right?

I guess, the point is, here we are on April 23rd, still producing far more oil than we're consuming. And the big landmark 10 million barrels per day cut that was announced, a week, week-and-a-half ago now, it's still a week away from kicking in. It's still going to be May 1st before Saudi Arabia and Russia, Canada and some of these other big players, UAE, that have announced cuts, before they're even on the hook to make those cuts. So, we're still in a position of massive overproduction.

Long story short, I mean, there's going to be hundreds and hundreds of millions of barrels of oil sitting in storage that are going to be sold into the markets as economic activity increases and oil consumption increases, before any of that demand starts showing up in the oil fields, before the producers can benefit from it, before the oilfield services companies, that do the work in the oilfields, before they can benefit from it.

If you went early as a buyer and you bought oil and you've got it sitting in a tanker, you know, somewhere off the Gulf of Mexico and you're waiting for the market to recover, I guarantee you're going to be willing to undercut any producer in the Permian, what they're going to try to get for oil out of the ground, to get that oil out of that tanker, that you're having to pay for storage.

So, again, that just further delays the economic recovery for a massive, massive section of the oil and gas industry anywhere from six months to a year behind the rest of the economy. It's just going to take a long time to work through all this oil.

Sciple: Right. I mean, everybody is talking about the reason the oil price collapsed so much on Monday, it is probably going to see, maybe not as extreme, but a similar sell-off as the June contract comes due. Literally, all the physical storage space we have available is full. So, that means we have to use up that oil in the tanks before we can start producing new oil to fill things up. And then, in addition to our on-land storage, there's a significant amount of oil that's going to be put on tankers, as you mentioned, Jason.

I saw one quote from an executive at the IEA [International Energy Agency] who said that up to 15% of total tanker capacity could be made available for floating storage which would be about 320 million barrels of oil. The previous peak, it was in 2009, was around 100 million barrels of crude. So, this is 3X the 2009 high that's going to be put in these tankers. And so, this is additional supply that needs to come off the market before we can resume previous levels of production. And as there has been declines in the available storage, because these tanker owners control a small control; this is really essential supply, the only place you can put this oil. Tanker rates are through the roof in the past month or so.

So, I saw some stats for VLCC, it's very large crude carriers, around $150,000 a day contract --

Hall: ... These are the vessels that can hold about two million barrels of oil.

Sciple: Yes, exactly. And so these very large crude carriers are now having day rates of about $150,000 a day. You compare that with the year ago, this is a very seasonal industry, rates go up and down throughout the year, but you compare that with the year ago, April 2019, rate is at about $10,000 a day. So, 15X, year-over-year, the rates that people are willing to pay for this energy storage. That's part of why oil prices are going down so much. In that, you don't have an end consumer for this oil. So, you have to bake in the storage price. As a purchaser, you have to bake in the price that it will cost you to store this oil to how much you're willing to pay and that's driven down oil prices and driven up the tanker rates.

Hall: Let me take those big giant numbers and convert them into something people can understand. $150,000 a day, just over 2 million barrels of oil. That's about $2.25 a month per barrel of oil that you have to add into your cost to profit. So, if you keep that oil in a tanker for five months, there's $10 a barrel right there. So, you know, these numbers can have a meaningful impact in what it takes to make money. So, you see that's the material impact that all this oil has.

Yesterday the EIA, the U.S. Energy Information Administration, released its weekly petroleum status report, and I think the total commercial crude inventories were just a shade under 519 million barrels. That's about another bad week away from the peak that was in commercial storage, which was actually set in 2017. But again, that number doesn't include any of the oil that they're talking about, you know, that couple hundred million barrels going into these tanker ships. And it also doesn't include the 50 million barrels to 80 million barrels that could get leased in the strategic petroleum reserve, right? That's not part of commercial storage.

So, if you really start looking at the whole bucket, we're already above-and-beyond any level of oil in storage that we've ever seen in the U.S. And the problem is getting bad around the world too.

So, not to belabor the point any more, but the point is that the economic recovery is going to happen far before the oil recovery, because there is just so much oil that's still in the market.

Sciple: Right. I mean, you mentioned gas earlier, how we've had the most demand destruction in gasoline since 1968, that's about 45% of total U.S. petroleum demand. You get another 9% or 10% from jet fuel. So, until we start flying planes again and using up our supplies of that, there's going to be oversupply there. Distillate fuel oil, which is, you're looking at things like diesel, that sort of thing, all these things are dependent on economic activity, us resuming trade, travel, all those sorts of things. And building up all this supply now and when we resume production, it will take some time to use up that supply.

I think one of the things a lot of people think about, Jason, maybe you have some thoughts on this, is OK, well, crude oil prices are so low, therefore people who use crude oil as their inputs have got to be in a great position, right? I mean, these refiners who use crude oil as their input, they're going to be in a good position. But even the refiners are facing a massive oversupply problem as well, isn't that right, Jason?

Hall: Yeah. So, it's a couple of things. So, refiners, this is interesting, this is one of the boring businesses in the oil and gas industry, that's actually done pretty well for investors over the past five or six years, while the oilfield services industry and producers have just destroyed, you know, tens of billions of dollars in capital. And the reason why is that these are kind of "steady as she goes" businesses, because typically, gasoline demand, jet fuel demand, they're pretty constant, right? They go up a little bit based on population growth and economic growth, but they're pretty "steady as she goes" industries. And they're relatively neutral in terms of oil prices go up, oil prices go down, because it's an input for them, Brent crude, major global benchmark is a major -- gasoline prices tend to be tied to Brent crude, so gas prices go up or down based on Brent crude going up or down, so it doesn't really affect the producers, because gasoline is cheaper to sell while oil is cheaper to buy. So, that's the thing.

The thing that's really hurting them the most right now is, these are very, very, very high fixed cost businesses. Running a refinery costs a tremendous amount of money, whether you're producing at 99% capacity or you're running at 59% capacity, the fixed costs don't necessarily flex a substantial amount. So, once their production, once their output that they're able to sell drops below a certain level, immediately they go from cash-cow business producing strong operating cash flows to losing money very, very quickly. So, their biggest problem right now is on the demand side that it has come down so much. So, we're going to see refiners struggle to make money as long as this -- again, the gasoline consumption is down +40% in the U.S., that's a real problem for refiners, so.

I think on the upside, as demand starts to recover, this should be one of the industries that recovers a little more quickly, because there is just not going to be as much refined product in storage as you're going to see with oil. So, that stored refined product will be consumed quicker and demand will pick up for them to need to increase their output. And I think that's probably when a lot of the refiners will really shine.

Phillips 66 is one that I've bought and it, kind of, keeps bubbling up as like my one oil stock that I'm consistently saying, "This is a good company to buy." Because you have a company like Phillips 66 with really good refineries that can take various different grades of crude, and it's a refiner that's in a position that can buy crudes that it might be able to get cheaper than the benchmarks that affect gasoline prices a little bit more. So, it has the ability to make a little bit better margins more quickly than some of the other refiners.

So, if you're looking for a business in the oil industry to invest, No. 1, I think the best thing to do right now is to look for signs of an economic recovery, like, a sustained economic recovery, and then wait a little bit longer to see some of this inventory work through. I think refiners are going to prove to be one of the areas that you're going to be able to get the best meaningful returns once we, kind of, figure out how quickly the economy is going to start growing.

Sciple: Yeah. So, on the demand side, to your point, refineries, just because of the decline in demand, have you cut some of their runs. I think I saw some data from the AAA that said refinery rates have dipped to 69%, which is a level that they hadn't seen in more than a decade. So, when there's less demand on the end products for refiners, they're not just going to be refining a bunch of products, you know, a bunch of jet fuel to sell it to planes that aren't flying. So, they're in a situation where they're having to cut production as well. And so, they're not in a position to take huge massive advantage of these lower oil prices. However, coming out of the backend, they will probably be better positioned than these E&Ps that, you know, a lot of those will probably be bankrupt and the refiners will still be around.

Hall: [laughs] Well, and refiners typically -- so, your average independent Permian-focused Shell or other unconventional independent oil producers, these poor companies, so many of them, they don't even carry 90-days' worth of operating cash on their books. You know, they're so dependent on getting steady cash flows and so many of them [laughs] have so much leverage that very few are built to last in this kind of an environment.

But most refiners tend to carry more cash, a lot of them already have -- you know, they have good revolving credit, because typically what they'll end up having to do is they go through these periods where they go into maintenance, where they'll shutdown parts of the refinery to do upkeep and capital improvements and that sort of thing. And a lot of times they'll use revolving credit facilities to bridge that gap until cash flows kick back up and then they can pay those revolving credit facilities down.

So, a lot of refiners are already built, because of just how their business model works, that they have access to liquidity that's going to serve them really well when so many independent producers simply don't. They don't have cash, they're already leveraged and nobody is going to lend them money, there's no lifelines that are going to be coming out from any of the banks. So, yeah, so I kind of like the space. I'm not ready yet, but I do like the space.

Sciple: One, kind of, follow-on from there, when we talk about a lot of these oil-related U.S. E&Ps probably, and when you look at their balance sheets, probably many of them are going to go under or at least have to sell off a bunch of assets, just really batten down the hatches. And if you remove a lot of those, if you envision a future where you remove a lot of those companies and their production off the market, not only are these companies producing oil but many of them are producing a significant portion of their production being associated to natural gas, natural gas liquids, all that sort of thing.

And if you look at the natural gas market in the U.S., prices have been through the floor for years and years and years, partially due to this massive oversupply due to associated gas, but when you envision a future where a lot of these folks go bankrupt, does this create an environment where more natural gas-focused producers might have more breathing space to succeed? Is that a thesis you believe in and what are your thoughts there?

Hall: So, No. 1, yeah, I agree completely that this is going to be a positive catalyst for gas price; it already has been. I think gas prices are up definitely double digits over the past couple of months, so that's already happened. Just to throw some stats out there, the Bakken, which is, as you get up into Dakota, something like 19% of the natural gas that was produced out of the Bakken last year was flared. It means, it was actually burned off at the well. There's so much gas that comes up that they can't even get rid of it all. [laughs] They can't even sell it because the market has been pushed down so low that in certain areas the answer has been to flare it off and burn it, so it's not as bad as a greenhouse gas versus just letting it escape. And that's cheaper than building pipelines to try to capture some of that gas.

So, yeah, it's going to help with the glut in the short-term, but here's the other flip side, where I'm not convinced that this is going to be a saving grace for a lot of the gas producers. And the thing that I think is going to prevent it from really being a saving grace is we're going to see a massive, massive delay in liquefied natural gas export projects, which the industry has been counting on as kind of being the savior for a lot of associated gas, but also just gas that's a little bit on the cusp of being profitable.

But the bottom-line is that there's still going to be demand for natural gas in a lot of places in the world, but a lot of these facilities are going to be paid for from profits and cash flows from oil. So, I know Shell recently stepped away from a project that it was working with one of midstream companies on, somewhere in Louisiana. And I know that we saw with Tellurian, the start-up, that Charif Souki, the founder of Cheniere Energy, the founder, it's his start-up. They had a major Indian oil company, kind of, walk away from a deal with them before things went bad.

So, I mean, I think we're going to see probably $100 billion of capital that was going to flow into these facilities over the next two or three years, that's probably not going to flow in now, just because the oil is so upside down.

So, I think, to me, that kind of blows up the thesis that this is going to make any of these independent gas-focused producers really necessarily investable, I just think there's still too much risk and it's still, kind of, in the "too hard" pile, based on the way the fundamentals have just changed completely for the export side of the business.

Sciple: That's interesting, I hadn't thought about, so that's a good point. If you increase the prices of natural gas in North America, as you pull some of this associated gas supply off the market, then that reduces the spread between U.S. natural gas prices and foreign natural gas prices, which those export terminals would capture that spread as part of their operations, as well as, you're taking away some of the oil capital that would fund the project in the first place. So, it's kind of a one-two punch there, if you think about it, if it pushes up natural gas prices and it hurts the spread that those facilities could make, as well as hurts the upfront capital that would be needed to invest in the facilities as well.

It just goes to show, basically across the energy market, these are very complex industries with lots of moving parts. And when you change one factor, one place, there could be a numerous number of consequences down the line that are really difficult to parse out on day one.

Hall: Yeah, I think between Tellurian and then NextDecade is another start-up that's kind of in that same Gulf Coast area, these two, a big part of their thesis was going to be, actually, associated gas, because associated gas is something that was -- I mean there's [laughs] Permian oil producers that would just about give it away, right? You build the infrastructure, you can have all the gas, [laughs] kind of thing. And it's just turned the thesis completely upside down.

So, yeah, I think it's a bit heartbreaking, but I just think it's, kind of, the reality right now, certainly in that we don't have enough information to really know. But you just follow the strings, and it doesn't look really necessarily that good.

Sciple: Yeah, I know, I've personally sold my Tellurian stake. I just think it's tough to see through the dark clouds. And with a lot of the sell-off that we had in the past month or so, there were some other opportunities I liked better, but I think there's still certainly potential there for them, but it's definitely -- the seas have gotten much more choppy in the last month or so for sure.

Hall: Yeah, but I still believe in the management team. And I called out a couple years ago, when I really started following the business closely, I said, look, here's the big risk for these kinds of businesses, is essentially they're going to be living off the generosity of others. They're going to have to do massive capital raises, you know, we're talking almost $30 billion for Tellurian, a little bit less for NextDecade. And I called out, I said, look, the thing that concerns me the most is unexpected macroeconomic events that change the capital markets in some way to prevent them from being able to get access to capital. And, obviously, [laughs] I wasn't predicting a global pandemic, but I mean that worst case scenario is what's unfolded.

But I do think, if there's a management team that can pull it off, you know, the folks at Tellurian, I think they've got some of the best people in the industry. It's just whether they're going to have enough to bridge them, and they can come up with a new plan for something smaller, maybe, where they can get a little bit of capital to build something to start generating some revenue. But, again, it's just, kind of, a mess right now.

Sciple: Sure. So, that's a lot of high-level thoughts, I think, from Jason and I on what's going on in the oil market right now, craziness with oil going negative, lots of implications down the line for refiners, storage companies, these export companies we've discussed a lot on the show.

Kind of, bringing it all back, zooming out high level, though, again, Jason. For folks that are interested in oil right now; I know there's a lot of retail investors, you mentioned the folks piling into USO, a lot of folks that are wanting to buy the big sell-offs in a lot of these companies. What advice do you have for, folks, who are interested in investing in oil and gas right now? What should they be doing?

Hall: So, first thing, I'm looking at West Texas crude futures right now, and futures only represent part of the oil market, there's a lot of private sales directly to providers and that sort of thing, that producers live off of, that don't have anything to do with spot prices. But you have to get all the way to February of 2021 before any futures are trading above $30 a barrel.

$30 a barrel doesn't pay the bills for, I would say, 95% of U.S. shale or other -- you start getting up into Canada, you start getting into some of the tar sands, oil sands. $30 a barrel is not paying anybody's bills, and that's where it's still trading going all the way into early next year.

So, the takeaway from there is, the closer a company is to the oil well, the more risk you're looking at taking on. So, you look at independent producers, with few exceptions, I think the space is a minefield to be avoided. You think about the oil services companies, the companies that do the picks-and-shovels work in the oilfield, again, I think that's going to be one of the worst businesses to be in for at least a year, because there's just going to be so much supply still on the market.

But then as you start to get a little bit further away and then you start talking about diversified businesses, so you look at your Royal Dutch Shell, which has $15 billion in cash on the books, a great petrochemicals business, a great natural gas business that's far more stable than where oil is right now, those things will help offset the risks that it has in its oil production business a little bit and its refining business. It has the capital to make it through.

Phillips 66, you know, it has a great petrochemicals business, a great midstream natural gas business, a great refining business that's primed to rebound earlier in the economic recovery than anybody on the other side. So, I think in general, I think there are still probably better industries to invest in with far less risk. They may not have the pure upside potential, if you get lucky and buy the right company that completely survives and fully recovers.

But the other big risk that I think investors have to stare squarely in the eye, is that we don't know what the recovery is going to look like for oil demand. You know, we spend months-and-months-and-months, businesses find these other ways to deploy their staff, companies decide business travel isn't as necessary, you know, technology has gotten a lot better to be able to engage and interact. I was on a Zoom call with a couple of guys in Dublin, Ireland today, this morning, a couple of investors that I know there, that have talked about how they see a future where business travel takes a major hit from the proliferation of tools like Zoom and Slack that are far more engaging and more powerful than anything that people try to use for virtual travel in the past. So, I think there are some very real implications for what a fully recovered oil industry looks like. It may not look like the oil industry that we saw at the end of 2019, right?

So, I think those are things that you also have to consider. So, it's not just looking at a ticker that's dropped 60% and saying, "When that goes up, I'm going to make 130%." That's because it may not go back up, because we don't know what the business environment for the oil industry is going to look like, and when we fast-forward three or four years, five years from now, what a fully recovered oil industry looks like. So, I think that's why, in general, I don't think it's necessarily the best place to invest, even though it's certainly still one of the hardest hit major industries that has fingers in every part of everybody's life.

Sciple: Yeah, Jason, I agree with you completely. Just to, kind of, take what you just said and put it into a short pithy statement, I guess. I think, a lot of the arguments you hear, folks, oh, well, the stock is off 60%, it's off 80%, well, if it just pops back, you know, I'm going to make a whole bunch of money. And implicit in that statement or that thesis is to say that the stock market has overreacted to what's going on with these businesses and that they've sold off too much relative to what's actually going on with them.

And given what you said about $30 oil for at least the next year, in a business that's had shaky balance sheets even leading into this, I would put forth the argument that the market has not reacted enough to how dire the situation is for a lot of these companies. Would you agree or disagree with that?

Hall: Oh, I definitely agree. I think that the idea that the industry needs to be bailed out is a misnomer. The assets are valuable, but you don't need the same stock ticker to run those assets. I mean, that's the bottom-line. So, I agree 100%, I'm buying on selling.

Sciple: [laughs] Oh, Jason, thanks for coming on the show. As always, if folks want to find your work, where can they track you down on Twitter or elsewhere?

Hall: So, I am @TMFVelvetHammer, and I tend to share most of my work, but if you just do a Google search for Jason Hall, The Motley Fool, you're going to find me and you're going to find out a lot more about the oil and gas industry than you maybe want to know. And you'll probably also find some other good ideas of where to invest that are not in oil and gas stocks.

Sciple: Yes. And we'll talk about that in the coming weeks. I'm sure I've been trying to get away from all these oil topics, but heck! Every week, something that has never happened before happens again. And you know we got to talk about that when history is made, don't you know?

Hall: Yep.

Sciple: Jason, thanks for coming on.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear.

Thanks to Austin Morgan for his work behind the glass. For Jason Hall, I'm Nick Sciple. Thanks for listening and Fool on!