“Formula for success: rise early, work hard, strike oil.”
-J. Paul Getty
If only success were as easy as getting up and striking oil. Unfortunately, it's more like get up, grind, get up, grind, get up, grind ... well you get the picture.
Luckily enough on the oil front, we are giving you a chance to strike black gold next week at our energy policy conference in New York on October 11th. The event is being run by our energy policy guru Joe McMonigle (former chief of staff of the Department of Energy among other things) who forgets more about energy policy than most of us will ever know.
The event is headlined by his excellency the former President of OPEC Chakib Khelil. The event also features:
- The Honorable Dan Brouillette, US Deputy Secretary of Energy, US Department of Energy;
- The Honorable Vincent Devito, Counselor to the Secretary for Energy Policy, US Department of Interior;
- Marc Spitzer, former Commissioner, Federal Energy Regulatory Commission (FERC)
- Karen Harbert, CEO, US Chamber of Commerce Global Energy Institute
- Rhone Resch, Board Member, Sunworks & former President, Solar Energy Industries Association
- Sarah Ladislaw, Director & Senior Fellow for Energy & National Security, CSIS
- Gianni Di Giovanni, Chairman, ENI Petroleum
It's basically a who's who in the world of energy policy. If your portfolio is at all leveraged to the price of oil, email to reserve a spot. We only have a few seats left!
Back to the Global Macro Grind…
On the topic of oil, Keith highlighted oil in his Direct from KM top three things this morning:
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“OIL – continues to correct from September’s #overbought highs, down another -0.6% this morning to $50.11 WTI with an immediate-term @Hedgeye Risk Range of $49.71-52.59; this sets up as a buying opportunity as Oil is trying to establish a bearish-to-bullish TREND Phase Transition @Hedgeye” |
There aren’t many broker dealers that are allowed to be bullish on oil, but since Hedgeye doesn’t trade for its own account, do any banking, or get paid by trades (we’ve also been basically MIFID II compliant for a decade!), we are actually allowed to follow the facts and our research. And the facts tell us it’s time to start sniffing around oil on the long side, even if for a trade.
When I pinged our commodities and derivatives guru, Ben Ryan, this morning on oil, he gave a bit more of a balanced view:
- Net Positioning: Trend following is prevalent in crude. CFTC net futures and options positioning bottomed in June right in line with crude oil prices and has since moved +127K longer on the margin over the last 3 months to net long +505K contracts. The all-time high in contract positioning came back in February at Reflation’s Peak (net long +586K);
- Crude’s Volatility Index (OVX): After Spending much of 2014-2015 above 40, Crude Oil’s volatility index (OVX) has been tightly range bound at 25-35; and
- Relative Volatility Trends (Energy Sector): Mirroring the trend in OVX, at the sector level XLE 30D realized volatility is -43% over the last 3 months which is the largest U.S.-equity linked decline in global macro driven by the Move from $42 to $50/barrel over that time period.
So admittedly, it’s not totally a contrarian call to be sniffing around oil on the long side, but if oil does confirms a bullish to bearish transition, rest assured there is going to be a lot of capital chasing it. At down roughly -14% on the year, there are only two major asset classes performing worse . . . natural gas at down -32% and coffee at down -17%. (Incidentally, in aggregate oil equities have performed worse than the commodity!)
While certainly supply and demand will rule in the long run, in the short run energy policy, especially as it relates to OPEC, will be a critical factor in driving the price of oil. Our energy policy team recently wrote this about their OPEC base case:
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“Base Case – We discuss our rationale in the various proposals below but our base case for action at the next OPEC meeting on November 30 is a 3-month deal extension and removing exemptions for Libya and Nigeria. No action at the November 30 meeting is not an option as it would be greeted by a negative market reaction. A 3-month extension would bring the deal to about the same time as OPEC’s first meeting of 2018 in late May or early June. Libya and Nigeria have increased production by significant levels and is a source of great frustration among other OPEC members. Instead of cuts, we see caps on current Libya and Nigeria production at about current levels. We think this is the base case (minimum action to be taken).” |
As of yet, we have no reason to change this perspective, but if you don’t agree with us, stop by the energy conference in New York next week (ping ) and you can get some input directly from the former President of OPEC, who, incidentally, was also the former Algerian energy minister.
As evidenced by Tesla’s recent results, the death of the fossil fuel industry has likely been widely exaggerated.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now as follows:
SPX 2511-2539 (bullish)
RUT 1 (bullish)
NASDAQ 6 (bullish)
VIX 9.17-10.38 (bearish)
Oil (WTI) 49.71-52.59 (bullish)
TSLA 328-365 (neutral)
Keep your head up and stick on the ice,
Daryl G. Jones
Head of Sales and Research
