One of our core Super-Spiked themes since inception nearly five years ago has been the idea that companies in deeply cyclical commodity sectors should aim to have a fortress balance sheet, and that you run the business to ensure that you can not only survive but actually thrive through industry downturns. Preparation for bad times is what enables success during the bull markets. It’s what positions companies to keep pace with and beat the broader S&P 500 over the decades through all the ups and downs. From the breakup of Standard Oil in 1911, its largest surviving pieces plus Royal Dutch/Shell not only survived but thrived over the next 100 years until the end of the China/BRICs super-cycle in 2014.
We are currently in an era where oil prices are around $100/bbl and refining margins are over $60/bbl and companies exposed to upstream and downstream oil commodity value chains are increasingly flush with cash. Today’s video adds a corollary to our fortress balance sheet ethos and that is “cash is king.” We have little doubt that Street analysts on upcoming 3Q2026 earnings conference calls will be querying management teams on what they will do with the cash and many will argue some large portion ought to be immediately returned to investors. If we are sticking with our pragmatic approach to energy, some of the surplus will and should go back to investors.
But there are a number of arguments made about returning all or the bulk of cash back to investors that we do not agree with. The strategic value of cash, especially in a deeply cyclical commodity business, is often under appreciated by both investors and management teams. It’s not simply having a fortress balance sheet. It’s about having a degree of balance sheet strength that enables significant counter-cyclical buybacks, M&A, or CAPEX. We would argue there is no such thing as having too much cash on hand, especially given our Geopolitical Super Vol macro framing.