Is your Energy analyst watching too much football?

Watching Footbal

Energy space woke up in July, we alerted our Clients to that (Click to see the Alert on Crude Oil on July 12)

It is easy for our Tools to spot major turning points: they routinely screen 70 countries for all related assets – Foreign Exchange, Equities, Fixed Income, Credit, Real Estate:

  • Did your analyst notice price of Real Estate in all oil-producing regions (Dubai, Norway, Canadian Alberta, etc) was appreciating?
  • Did your analyst acknowledge that currencies of all countries with a heavy dependency on oil were outperforming? Norwegian Krona, Canadian Dollar, Algerian Dinar, Russian Ruble, Kazakhstan Tenge, Mexican Peso, Malaysian Ringgit are all having great years.

We hear from clients being skeptical about the Energy trade: “well, how about fundamentals?”. The truth is that the term “fundamentals” is usually assigned to indisputable, backward-looking indicators.  Remember, markets lead over fundamentals. And, even those traditional “fundamentals” are improving! See below the Chart of Price of Brent Oil plotted versus inventory of Crude Oil Stock, which was consistently declining since April 2017 (the Red arrow line heading higher). “Coincidentally” matching the time of recovery in the price of Crude Oil.

Most importantly did your Energy analyst rushed into your office telling you that recently Brent Futures went to Backwardation from Contango?

This is a Big change in the Oil Markets: It used to be that Crude Oil had a bid to go into storage, while now, traders are bidding the Crude Oil out of storage.  So, demand is getting stronger by week. That is a very major change in the makeup of Energy markets. The Term Structure of Crude Oil is screaming at you – something that is changing on the demand side.

We deliberately don’t attach here a picture of a term structure for Brent Oil – ask your analyst to get one for you and explain why she (he) isn’t alerted by that profound shift in fundamentally tightening supply/demand.

Is your Energy analyst watching too much football?

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