Brent is going to hit $80
Matein Khalid Mateinomics
Wall Street folklore contends that an investor owns technology but only rents energy. Yet energy was the best rental asset money can buy in 2021 since it rose a phenomenal 48%.
As a black gold junkie, ever since I read Daniel Yergin's "The Prize" and Paul Erdman's "Crash of '79", I believe Brent is going to hit $80 a barrel sometime this fall and thus go full throttle on the energy stocks I recommended here way back last August: Chevron, Schlumberger, Total, BP, MPC, COP, Oxy and Devon. Why?
1) The net emissions Gestapo has now reached the boardrooms of the Seven Sisters, as the two Engine No.1 directors at Exxon attest. This means oil and gas capex will be capped or even decline at a time of rising demand for gasoline/jet fuel/diesel as world trade and travel normalizes. Lord Keynes said teach a parrot to say supply and demand and you make an economist out of the tota (parrot).
2) The Iran nuclear deal (JCPOA 2.0) does not address the regime's ballistic missile arsenal, its toxic messianic ideology or its subversive proxies in Iraq, Lebanon, Yemen, Syria and Af-Pak. So it is premature to assume that the geopolitical risk premium will vanish even if Biden cuddles a hirsute Ayatollah at Vienna. The frontrunner in the Iranian election, Ebrahim Raisi, is not exactly a Jeffersonian Democrat in love with mom, apple-pie and Big Macs.
3) Saudi Arabia is in the midst of its most ambitious socio-economic transformation since the dawn of the OPEC petrodollar oil bonanza in King Faisal's reign. Drilling costs in the Kingdom are $8 a barrel while budget breakeven is above $75, this means that Saudi Arabia will continue to play the role of swing producer in OPEC as it cannot afford another 2014 scale freefall.
The Kremlin is also on edge now that the Russian middle class protest in the streets of Moscow/Peter against Tsar Vlado the Baddo. The Kingdom and the Kremlin both have a vested interest in high oil prices and this is exactly what will happen, making my energy stocks continue their financial boogey woogey.
Matein Khalid is the Chief Investment Officer of Asas Capital Management. He has 25 years of experience in international capital markets as an advisor to family offices and fund managers. He has worked for investment banks/hedge funds in New York, Chicago, London, and Geneva. In addition, he has been the CIO of a technology fund in San Francisco, a royal investment office in Dubai and a public insurance company listed on the DFM.
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