Current Thoughts - Oil Price Intelligence, Analysis & Insights
We have grown more skeptical of consensus world-view and foresee a greater probability of a painful correction in oil prices in the near term.
Bullish OPEC and EIA Inventory Data in October completely reverse in November.
We see no reason to change our recommended long-volatility positioning, given uncertain policy implications following the US election, and our assessment of no better than equal probability for OPEC action at the end of November.
Reports from the IEA and OPEC this past week have dispelled the notion of a second-half 2016 recovery, and the new hope is for visible improvement by mid-to-late 2017.
The oil-price trend is down. The momentum of recovery from lows in January to a peak in June has been broken by the resurgence of macroeconomic-related fears, and the emergence of fundamental data suggesting high refinery utilization rates may have overestimated end demand, resulting in unseasonable refined product inventory builds (gasoline).
Remember the Thai Baht in 1998? In the same way, the impact of Brexit on oil prices is not just about the direct, economic impact of potentially reduced physical oil demand from the UK, or even the EU.
The upward trend in current oil pricing has not yet been confirmed by a majority of our milestones. Thus, we still prefer non-directional, long volatility investments for liquid traders and cautious, positive yielding (free cash flow supported) underlying assets for private equity, credit and industry buyers.
We don't see enough evidence of sustainable demand strength, or a coordinated OPEC production cut lead by the Saudi's to unconditionally embrace the notion of "up from here".
The March rally in oil prices has had little to do with a change in oil supply and demand fundamentals.
In our opinion those estimates are too conservative and high yield default rate will exceed its 20-year average of 4% leading to a negative total return for high yield bonds in 2016.
Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment, tax, legal or any other advisory capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in commodities, derivatives or securities mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of any companies' SEC filings, if applicable, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.