Thread by @BurggrabenH

1/13 On oil & oil equity prices:

So why does oil and oil equities underperform the S&P and NASDAQ in 2019 by a wide margin? #OOTT #brent #WTI #oilprice

2/13 As shown by Crescat Capital, this is a growth/ETF/momentum market which left commodities at 50 year relative historical lows! @crescatkevin @TaviCosta

3/13 So how do oil prices format?

Short term, spot prices #trade around inventory levels.

However, it is hard for #Brent and oil equities to go up on declining inventories while demand/macro weakens (macro outlook uncertain). #OOTT #WTI @HFI_Research

5/13 ...and the Cycle weakens consistently with PMIs in recession territory worldwide...

@Hedgeye

5/13 Long term, higher oil prices need a stable cycle and #shale to blink - i.e. to stop growing - for the market to accept the looming supply gap & for the anchor price to move up big! #OOTT

6/13 But note that the #Permian is slowing down already...

7/13 ...in our view mainly due to what we coined „capital starvation“... #capstarvation

8/13 This is because #shale growth was about „overspending“. Shale grew because it invested capital it did not earn but raised from the US junk bond and equity market. @kingofcrude

9/13 And while technology (longer laterals; more sand; better fracs; etc) lead to higher IP rates and/lower cost, it may NOT mean more oil (higher EUR) or LOWER unit cost...#Fracking #frac

10/13 MIT study: Shale growth was little about technology. Instead it was about burning through low cost of abundant capital, but still without managing to generate FCF after 10 years of scaling & despite much „high grading“ since 2015, ie drilling the best locations first.

11/13 A Known Unknown: Uncertainty about Tier 1 exhaustion & technology efficiency gains are reasons why shale forecasting remains „all over the board“....

@anasalhajji @chigrl @ericnuttall

12/13 ...and why the anchor prices remains well below its marginal cost curve to sustainably supply
>100 mb/d...!

#OilPrice #Crude_Quality_Matters

13/13 ...and hence why „there is always too little or too much oil“!

@Bob_McNally calls this a boom bust market in his excellent book Crude Volatility. @TSXcapital @Go_Rozen