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1w ago on

Time to take prompt oil profits. I am taking profits on prompt oil and products into the midterms. The regime trade stays on. It comes back to the two trades I described this morning. The war trade pays on the price of the barrel: prompt crude, products, the windfall on barrels already in the ground. It is eight months old. The regime trade pays on the cost of replacing the barrel: rigs, services, local production, bypass capacity, firm power and storage. It is the structural supercycle call we made in 2020, driven by deglobalisation, debasement and electrification, compounded by underinvestment. The war brought that trade forward, but it did not create it. A reminder of the scorecard: commodities are the best-performing asset class of the decade: the S&P GSCI has returned about 260% since we called for the supercycle in October 2020, against 121% for the Nasdaq and 120% for the S&P 500. Commodities were already ahead of both before Hormuz - it just widened the gap. Why take profits now? Escalation would be so catastrophic for food and fuel supply chains that neither side will pursue it, while a lasting deal is equally elusive. The compromise is managed instability, with Schrödinger's Strait at the heart of it: a Strait that is neither open nor closed. That caps the prompt barrel. It does nothing to cheapen the next one. It has been a fantastic run. USO is up 144% this year. Energy, where the refiners and integrated majors carry the product exposure, is up 60%, the fifth-fastest run to a 50% gain since 1990, and the Munificent 7 did it on a Sharpe ratio around 2. The war trade has paid. My view on the regime is unchanged. Eight months into the closure, the world is rebuilding its physical system around the expectation that the Strait closes again: Gulf producers loading outside it, Italy restarting nuclear, the Dutch reopening North Sea gas, China sitting on 1.4 billion barrels. These are long-term investments in energy security. None of it dissipates when the ships come back. The investment to support that regime has barely begun. Oil is near $100 and drilling has hardly moved. Upstream investment is still well below its 2015 peak and refining investment sits at a decade low. Calendar 2027 Brent trades above every forecast on the Street: a long-term supply problem that nobody has yet been paid to fix. A supercycle is a capex cycle. The owners of the molecule get paid first. The builders get paid next. Prompt oil prices a war. Long-dated oil prices a regime. Trade the first, own the second. I have cut most of my prompt oil and product exposure and kept a small position in case hostilities resume after the midterms. If prompt prices fall from here I will not be in a hurry to rebuild them. The money has moved to the services and producers that build the regime. The first leg has paid. The second is still being built. These are my personal views and positions, not investment advice.

Higher for longer - that was the core message in my discussion with @CNBC Squawk Box Europe this morning. Everyone is focused on the spot price of oil. But look further out: calendar 2027 Brent is holding around $97 a barrel. That’s close to $100 priced in for an entire year, not simply a short-term spike. That has implications for everything from industrial and agriculture production to transportation costs and inflation in the months ahead. Now look at energy equities. The Munificent 7 are hitting all-time highs as the back end of the oil curve approaches $100. This is looking increasingly structural, not transient. It's the Revenge of the Old Economy in action. The old economy is short-duration, asset-heavy and benefiting from higher commodity prices, whereas the new economy is long-duration, asset-light and increasingly exposed to higher interest rates and inflation. The irony in all this is that the old economy is fuelling the new economy. AI needs electricity, transformers, copper, high-voltage cables and critical minerals. None of that exists without the physical world. ‘Generalists’ in the market are beginning to recognise what specialists across the physical economy has been telling us for some time: higher for longer isn't just centred on bottlenecks and disruption to the flow of hydrocarbons out of the Strait of Hormuz. Instead, it’s a structural shift that is likely here to stay. We’re electrifying the world for many reasons, chief among them the so-called energy transition. The original driving force of the transition, led by the Carter administration, wasn’t the need to adopt clean energy with climate change in mind; it was driven by an urgent need for energy security in response to the oil shocks of the 1970s. We’re seeing a repeat today: the crisis in the Strait of Hormuz and bottlenecks elsewhere, impacting our ability to source and transport hydrocarbons, is forcing states to turn to electrification. Great discussion with @cnbcKaren and Steve Sedgwick - thank you for having me on.

1947 Oil & Gas: check out Brendan Long from CREST's report. - Our production restart adds ~1,000 boe/d, ahead of expectations - He values the company on $75 WTI against spot of $103.44 and 2027 futures at $89.27. - He expects material upgrades into 2027 as strong oil pricing is recognised as structural. - CONVICTION BUY, 16.2p target, 76% upside. Read the report in full below.

The macro repricing of energy is now underway. Check out today's move in long dated oil - that's calendar 2027 WTI. When long dated oil moves this strongly in tandem with energy equities making new ATHs, financial markets need to listen. This is not a transient spike in prompt oil. It's far more structural. Get long, buckle your seat belt, and hang on for the ride.

You can have that one, @annmarie.  It’s a vibe contract with the vibe set in Washington. The reason it’s a vibe contract is that ICE Brent never touches a wet barrel. Instead it converges to a futures contract on Dated Bent and is cash settled, making it a derivative on a derivative. Whether Washington sold barrels is irrelevant, it is the undenied threat that matters here because it has become unpriceable risk that discourages market participants which has caused a sharp decline in open interest, creating this disconnect with reality. As we discussed earlier, the impact goes beyond pricing. Futures markets exist to help participants hedge risk and guide them on investments. When those signals become distorted, hedging becomes harder, hedgers become hesitant and physical scarcity can worsen. Washington may be focused on keeping the screen price down, but that doesn’t solve the physical shortage. It makes it worse in the end.