An interesting Point of view with some very sensible reasoning. Read on.
Oil: Will the Malthusian View Carry the Day?
By Charles Gave
There is no doubt that we have been on the wrong side of the great oil bull market. And a number of clients have (rightly) taken us to task for this mistake. After all, oil was one of the more important calls for money managers in the past year. Managers overweight energy (and energy-producing countries such as Russia or Norway) did very well until this spring; managers underweight energy by and large under-performed.
Then in May and June, a number of energy stocks suffered fairly dramatic drops. This came as a surprise to many since oil prices themselves did not drop much. Given that energy stocks make money hand over fist at US$40/bl, why should they fall when oil was at US$70/bl (an increasing number of irritated clients would ask us)? By mid-August, following the Israeli retaliation against Hezbollah and the BP Alaska pipeline problem, oil was making new highs of US$78/bl… but oil service stocks were still down -18% from their mid-May highs. How did this make sense? Was it just that everyone and their dog was long energy stocks/short the commodity and investors just got squeezed? Was it the short-term liquidity squeeze we had discussed in our research – and thus an opportunity to buy more? Or was something bigger afoot?
It is amazing the difference a short amount of time can make in this business. A few years ago, we could count on one hand clients who, in our regular visits, wanted to talk about energy. In our latest round-the-world journey to meet clients, it felt that oil was the only thing clients wanted to talk about, with a passion that we had not witnessed since the tech-boom days. [Read more…]