Will Oil hit $100?

Abraham George Market Musings

The spike in oil prices is not a surprise to us . When the Biden administration came to power we called ‘long oil: a no-brainer trade. In a little over one month, oil has risen as much as 20% . Very soon, Americans will be celebrating their Independence Day on 4th of July. Even the administration had earmarked this day as a day of freedom from this unpredictable foe (COVID-19) and a day of celebration from the virus. So travel should boom.

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Oil prices are up .45% at gas station across America from a year go. Don’t think this is going to abate any time soon as the supply/demand mismatch is getting out of control. The main reason is as we have stated many times before, the Biden administration is putting very strict regulations on domestic oil supply . That gives OPEC and Russia the upper hand to dictate prices. Don’t ever think OPEC wants prices anytime lower. Even early this month they bumped up output gradually higher but still oil prices went up and not down.

They are again meeting tomorrow. But think oil prices will still be higher after the meeting. The focus in oil market has been all about future demand- meaning less demand driven by the publicity of rapid changes to EVs, wind and solar farms. The players and administrators have underestimated the oil demand for now. They have also underestimated the economic impact that is coming down the pike from regulating away supply (ESG and climate activist movements).

All of a sudden some big industrial houses are talking about $100 oil while we have been talking about it since a few months. Whenever big industrial house and banks start advertising about a theme it is also time to be cautious. They will surely want to have market liquidity and sentiment on their side to exit their positions.

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Back in 2007, Goldman Sachs advertised heavily that oil will go to $200. Their flag bearer for this story was their chief oil analyst Arjun Murthy. Many started to believe in Goldman Sachs and Murthy. Oil rose up to $149 and fell back to $35 in no time. It was one of the biggest reversal in market fortunes in any publicity traded instruments. Of course there was the GFC that contributed to the change in fortunes. It also goes to prove how leveraged the markets were. We never heard of Murthy again.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.