This week we continue with our examination of the news flow that has been rocking markets. We find it interesting that the headlines have inextricably linked the latest burst in inflation and energy prices squarely with the Russia-Ukraine escalation story. However, for those of you that have been long-term readers, you may remember that we had previously made the call for triple digit oil prices even before the Putin-made fiasco. The latest round of sanctions may have only sped up the process. Similarly, we made the call that higher inflation numbers were likely to be printed due to the fiscal impetus and the nature of the responses to Covid-19. Alongside this, we posited that central banks may find it more difficult to normalise policy than the markets may be expecting.
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This week we take a dive into energy markets, in particular the likely medium to long term outlook for the sector. We have previously written on the potential dislocations both in uranium spot prices (which we wrote off last year) and the potential upward trajectory in oil prices. The former has seemingly played out (though it may still be very much in its infancy) and the second seems to be playing out in real time with Brent futures trading at US$85.45 per barrel and WTI at US$83.73 per barrel. Many would also be aware of the sheer scale of disruptions in the UK and broader shortages of LNG in the Eurozone heading into winter. Even more recently, the headlines have been taken over by blackouts in China in the face of increased demand.
This week we visit perhaps one of the most prominent and divisive topics in investing at present. That is the future of energy markets and, in particular, where the price of oil heads to from here.
As always, take our ramblings with a grain of salt since, like you, we are trying to make sense of an investment universe that gets ahead of us. One recollects the words of Jean Baudrillard in this environment for “We live in a world where there is more and more information, and less and less meaning.” As such we shall try make use of our limited rationality to extrapolate as much meaning as we can. We continue our examination of global oil markets with Part 2 of the series Oil Markets - Evolution of the Body Politic. To read Part 1 click here.
Last week we made a call that the OPEC meetings would most likely result in a maintenance of the status quo and though this initially seemed to be the case, things changed rather quickly. This week we present a piece by Ben Goodwin, analyst with Merlon Capital Partners who power the TAMIM Australian Equity Income IMA, as they examine the Oil cycle and the effects it has on their portfolio.
Information current at 31 December 2017. |
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