OIL POSITIONING
Take a look at this. Josh Young of Bison Capital posted this.
This is a really interesting perspective from the same report on the dual modes of the oil market. Oil prices tend to hover near demand destruction pricing levels or supply destruction pricing levels. The current price is near average for supply destruction levels.
The takeaway is that on probability you want to be long, not short at periods where you’re hovering at supply destruction levels. Keep in mind that these previous historical periods have NOT coincided with the following:
- Global conflagration/war
- Monetary regime change
- End of debt supercycle
- No capex spending
- A decade of supply destruction
- Depletive industry
I think much of the oil trade for 2022 and the first half of 2023 has been position trading. The other thing to consider is that the market has been net short oil. That’s all fine, but the cost of that positioning has increased, meaning that simply due to carrying costs on the trade, traders need a meaningful decline (not flatlining or even small decline) in the price of oil in order to profit. I think we’re approaching exhaustion on the speculative side of this market. A decline in shorts and/or shorts taking their positions off releases the pressure on the market. I hate making any short-term predictions because in the long run they’re typically worthless, but I’ll do so anyway, if only for shits and giggles. The second half of the year is likely to see oil run, maybe even to $100. There, I said it.
In our humble opinion, the entire oil space is highly asymmetric, and within the many sub sectors of the oil space, our favoured is the offshore drilling space.
Sensitive folks should look away now…
I know, I know… I am a bad man. Just don’t cancel me.
In all seriousness, I think we’re going to look back on this period some years hence and marvel at how cheap this asset class was.
If you are a self-directed stock investor looking for an edge, we can show you. Just click on the links (below my name) to find a solution that works best for you.
- Chris MacIntosh
Capitalist Exploits | Glenorchy Capital Macro fund | Subscribe to Insider | Rebel Capitalist Pro
