In a “hot mic” moment you may have missed yesterday, a senior VP at ExxonMobil noted that the drawdown in oil supplies is reaching critical levels. If conditions don’t change within a few weeks, prices could or will spike higher.
We first wrote about the International Energy Agency (IEA) early warning declaration in early March, not long after U.S. and Israeli missiles started pummeling targets in Iran and Lebanon. The IEA’s recommendation was to use the Strategic Petroleum Reserve to keep oil prices moderated.
The effort hasn’t stopped for going on three months now.
Pick your measure. Oil and oil-related commodities are facing severe shortages:
Oil and gas supplies typically get drawn down during the summer, ahead of the busy driving season. This year, gasoline inventories are far below trend. (Source: HFI Research)
Why hasn’t oil already moved higher as inventories have been drawn down? Traders are still hanging on to daily headlines about an imminent peace deal. Administration officials have been quite adamant that the interruption of *crude, helium and fertilizer through the Strait of Hormuz is a temporary annoyance.
As an investor, you have to read the room, even if you support the political effort. There’s a saying on Wall Street, “buy the rumor, sell the news.” Global oil market traders are buying the rumor that the new ceasefire deal will hold for 60 more days.
We’re vigilant. Agnostic, even.
Given the current environment, once a peace deal is announced, oil prices will drop. For now, we’ll reserve judgment on the rally in semiconductor and space stocks. And do as Buffett, Dalio and Druckenmiller have done over the past year… buy into the real economy.
Although oil stocks are off their highs, they may get a second wind if prices soar. For a shareholder-friendly play in the oil space that will increase dividend payouts as its cash flow increases, become a member of Grey Swan Pro — details here.
~ Addison
P.S. This week’s data shows persistent inflation may become a feature of the economy in the years ahead as we move from an era of structural disinflation to structural inflation. So the oil play may continue to be attractive, not just in the weeks ahead, but in the years ahead.
The most notable signal is rising long-term rates in the face of Fed efforts to cut the short-term. The signal we propose will trigger a rotation of up to $17 trillion into an unloved and overlooked segment of the S&P 500.
Investors need to prepare. We covered this Great Race to adjust to a world of more persistent inflation in yesterday’s Grey Swan Live! If you’re a paid-up member, you can access the full replay, right here:
If you have any questions for us, send them to Feedback@GreySwanFraternity.com.
