Thread by @pickeringenergy

The energy shellacking continued today, but looking across the market, the action is actually fairly consistent (more in the thread below).As/when the industry puts up sustained cash flows, this selloff will look way overdone - but who knows if its over yet!?!? #EFT #OOTT

Market action says recession coming, interest rates won't go up as much as you think, inflation will moderate. Examples:
1) bonds up, yields down
2) commodities softening - not just oil - wheat, copper, etc (why? expectations of demand softening)

3) Nasdaq outperforming (lower rate expectations means higher NPVs)...$ARKK names the best example with many up double digits today
4) Consumer sensitive names getting smoked (airlines, hotels, retail, etc)

What's a little confusing is that if a recession is coming and rates are gonna be less than expected, why should any stocks be going up?....or maybe the S&P and QQQ strength today says they were oversold and the bottom is in. Above my pay grade.

Turning back to energy - my personal belief is that a slower economy is not going to be slow enough/bad enough to put a notable dent in energy demand. Yes, it will be softer on the margin (I've been harping about that for several months)..but not bad.

Then add the fact that Russia sanctions are going to start reducing supply (remember the Europe sanctions are scheduled for later this year so they can scramble for alternative supply). So some demand destruction is going to get offset by reduced global supply.

Organic oil/gas supply above current expectations is 12+ months away (probably longer)...unless Saudi or UAE are gonna unleash a lot more spare barrels - but why would they, they are in the driver's seat. So there is no supply addition story for a couple years.

So the market is painting a picture of "its going to be bad" for almost all asset classes...but the fundamental energy picture is really more "its going to be less good" - which the $70-$75 2025 backwardated forward curve had already told us vs. $110+ front month.

If oil and gas was a popular, established, entrenched-owner sector (like tech has been for years), then there would have been plenty of diamond handed owners that would shrug off the macro story and stick with the energy sector. Instead, recent owners/winners are bailing quickly.

What stops the bleeding? Always hard to tell when a "theme" has been fully discounted. Q3 earnings will show the sector's massive cash flow generation. Stock buybacks will show the sector's discipline. Stocks down more than the commodities, so cheap valuations getting cheaper.

In times like this (and there have been many over the past 25 years), you optimize your portfolio. Get bigger in your best ideas and shrink/sell the lower conviction ideas. Forget if you've made/lost money in a specific name. Add to the best risk/reward names you see today.

Where could the patient bull thesis be wrong?
* Meaningful economic crisis turfs demand (not just a slowdown).
* Saudi/UAE add 1mmbopd extra barrels.
* US shale players ramp growth remarkably (assassins will be dispatched by the buyside).
* Black swan decarb technology.

Summing it all up, in my opinion, the equity market is overstating the deterioration of future oil/gas supply/demand. Fighting the macro/machines is tough as we are witnessing with $XLE -19% this month (SPX -8%). There is no solace that XLE is still outperforming by 4700bps YTD

Hard to guess when the sellers will run out of ammo. Until they do, anybody long is gonna feel like a dumbass. When they do, anybody that didn't "buy the dip" is gonna feel like a dumbass. Feeling dumb no matter what - welcome to my world!

PS - Dear Lord, please give us a day where geopolitical action or energy stock action gives us nothing to do on Twitter but seek out funny memes and strategize our #FridayRollCall picture location.