Thread by @pickeringenergy

I have been one-directional in raving energy industry looks attractive. #EFT #OOTT Tight supply/demand AND structural underpin of Energy Security with Russia situation.Price is the one datapoint that (is supposed to) reflect all variables going into the collective market thinking

I guess that is why chart people usually focus so heavily on price (and volume) - in a reasonably deep market like oil and gas, it is a dispassionate indicator of a jillion smart people with a jillion different objectives (trading, hedging, consuming, etc)

Sure, oil price is often wrong. The oil futures curve rarely accurately predicts big moves up or down. Which is what allows us fundamental folks to “have a chance” at forecasting whether oil is cheap or expensive. But i digress.

Look at price today - it is strong. Over $100/bbl - after having averaged much much less than that for years. This price is occurring despite 1) widespread recession fears, 2) partial lockdowns in the second biggest consumer in the world (China)

3) a strong dollar that makes oil more expensive worldwide, 4) supply chain problems that are restricting consumption and 5) higher-than-previous prices that should be dampening demand.

And let’s not forget the relentless push by global governments to reduce hydrocarbon consumption by substituting renewable energy. Given that all these dynamics exist and oil is still over $100/bbl..should that very fact make us bulllish?

Sure, this kind of tightness will get solved - like it always does - by a combination of incremental supply (which will take mucho time) or by lower demand (which could be painfully episodic like 2008 Global Financial Crisis)

In the meantime, the quick fix - lower demand - is being “fought” by subsidies worldwide as leaders don’t want voters to have curtail consumption. For many, gasoline or diesel is more expensive than it was but still cheaper than the unfettered price.

So..despite all the potential downward influences on oil, price remains high.Which says something really bad is going to have to happen to break it in the short term. There are lots of painful economic things on the horizon, but most aren’t forecasting really bad stuff (like GFC)

Then we look at energy stocks - at roughly $60/bbl implied long term oil price, they discount oil $40/bbl below the spot price and $10/bbl below the 2025 futures price. Hmmmm. Price feels good/strong and stocks are cheaper than the price.

Why? Because of the abuse of bad performance sufffered in energy over the past 6 years, because tech has been awesome, because the industry shot itself in the foot with oversupply. The above issues are better/changing/changed.

This is why I believe many investors will return to the space. Sustained decent commodity, great cash flows, decent discipline with these cash flows and therefore DURATION of the strong conditions. This DURATION will inexorably pull money/institutional players into the space

It happened in tech (look how much people own and believe because of the duration of the tech upcycle). It will happen in energy. The skeptics that become believers will bring massive $$. And valuations will expand from cheap to reasonable to expensive.

This is why I harp on the energy sector in a one-directional bullish way these days. The odds are stacked in its favor. More so than any time since 1980’s. And these kinds of fat pitches don’t happen often in markets. Godspeed to all!!! #EFT #OOTT