Oil markets are again trading the $100/bbl level. We’ve been here before including at the height of the COVID recovery and start of Russia-Ukraine in 2022-23. The point of this week’s post is to assess where we are in the current macro era today and compare and contrast the current set-up with prior periods of high prices. Our aim, as always, is on helping management teams and board directors navigate a Geopolitical Super Vol energy macro backdrop.
Three things jump out at us today:
- Back end oil remains firmly anchored in the $65-$70/bbl range, a general price band we think is sensible.
- We are in year 5 of the Geopolitical Super Vol era characterized by persistent forward curve backwardation…”oil glut” has been a terrible call, even as we recognize sharp pullbacks, especially when the curve is steeply backwardated are inevitable.
- Investors are slowly shifting from the doubt of “you-guys-will-always-waste-money” world view to having a more open mind about the outlook. It’s probably too strong to say we are fully glass half full for traditional oil value chain names, but there does seem to be a growing recognition that traditional energy companies can generate competitive profitability with the right business model and asset mix.
Our bottom line conclusion is that we still think sector weightings across energy, power, and key metals and minerals can about double from here. Certainly there is still a long way to go in the current Geopolitical Super Vol era and a period of overall healthy profitability and to varying degrees top and bottom line per share growth.