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This week's video brings together our last two written posts that questioned the market's obsession with OPEC noise and short-term inventory changes, especially when contemplating the potential for an oil super-cycle. We observe that inventory movements drive the front-end of the curve, but do not offer insight on the long-term cycle. It is the long-end of the forward that gives the signal as to whether we are in a trading market or a super cycle. So far, it is the former; hence our use of the "Super Vol" rather than "Super Cycle" phraseology.
The key to a rise in long-dated prices would be a combination of US shale oil supply disappointments relative to rig count and signs that global GDP was accelerating and could maintain momentum with higher spot oil. The steepening and growing maturity of the non-OPEC supply curve, coupled with moderate global oil demand growth, suggests a pinch point will likely come, it just hasn't obviously arrived yet.
The final area discussed is the impact of "Super Vol" vs "Super-Cycle" on sector profitability. Perhaps paradoxically, a volatile, "grind-it-out" macro backdrop may be more conducive to sustain advantaged ROCE than one where a super-cycle materializes. Avoiding the ROCE "quadrilateral of death" that we have previously discussed is a key objective for individual companies and the sector broadly.
Finally, we'd like to highlight two appearances from this past week. I was on Andrew Stotz's "My Worst Investment Ever" podcast (here), where he discussed his regret of ignoring sector ROCE erosion during the second half of the Super-Spike era. He also joined Canadian portfolio manager Eric Nuttall on a Twitter Spaces (here) hosted by Twitter #EFT commodities super-star Tracy Shuchart (@chigrl). Key themes discussed included Super Vol vs Super-Cycle, the outlook for Canadian energy, sector profitability trends, and perspectives on energy transition.
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⚖️Disclaimer
I certify that these are my personal, strongly held views at the time of this post. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments. Some of my comments are made in jest for entertainment purposes; I sincerely mean no offense to anyone that takes issue.
📜 Credits
Intro & Outro music: Wolf Hoffman: Concerto for 2 Cellos in G Minor, Rv 531: I. Allegro Moderato.
This episode of Super-Spiked Videopods was edited and produced by Veriten Productions.
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