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Bulltrend's avatar

Cornerstone seems very optimistic for oil priced, do you see he’s comment? https://www.bnnbloomberg.ca/video/russian-oil-production-cuts-a-start-of-a-capacity-problem-cornerstone-analytics~2663196

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James Robertson's avatar

Arjun, I've been thinking a lot about whether super vol only applies to the oil market, or whether it will also be something that might occur generally in the global economy and markets in the future. I've been reading articles for almost a year about how we might end up in a situation similar to the 70's where central banks have to raise and lower interest rates to deal with inflation that won't go away, such that markets look like a sign wave, which when averaged out and adjusted for inflation looks flat (i.e. stagflation). While no one can predict the future, it seems pretty clear that central banks have painted themselves into a corner by having kept interest rates so low for so long together with "QE infinity" that the entire system has such high levels of public and private debt (unlike the 70s) that it can't deal with high rates necessary to quell inflation for an extended period of time without imploding. The bond market seems to be betting that the Fed will be changing course soon, perhaps before inflation is reduced to manageable levels, which might lead to further bouts of inflation in the future. If we do enter a stagflationary environment. I wonder how that impacts CAPEX decisions not just for oil and gas, but all other industries if investors generally (not just in oil/gas) only reward managements for returning cash to shareholders, rather than making risky CAPEX investments? Of course, if that happens in all industries, does that continue to negatively impact investment in energy CAPEX leading to future price spikes and then demand destruction? (e.g. the WSJ story about XOM in talks with PXD for potential acquisition and giving up on drilling offshore in Brazil). Because of the criticality of energy in the economy, the potential synergistic feedback loops in this scenario are kind of scary. Your thoughts?

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