My strategy recommendation to my friends was to short Brent crude at or above $120 for the $65 target I got from the world’s pre-eminent oil economist/OPEC watcher Ed Morse. The short Brent idea has been a money gusher now that Brent has plunged 7% in today’s session to 99 as I write. The fall in oil prices was inevitable. King Dollar is at 20 year highs, gold has plunged to 1725, Dr. Copper and the industrial metal complex is in deep macro doo doo and recession risk is being priced into every asset class I track with a vengeance.
Another reason for crude oil’s plunge is that macro hedge funds now agree that demand destruction can well cause another $30 to $35 drop in oil prices as Ed Morse expects and are now implementing the exact strategies I outlined in my strategy posts. It is significant that trend following CTAs or momentum traders did not defend West Texas Intermediate futures at $100 and slammed them down to $96, a mere 4% above pre-Ukraine invasion levels.
Yet the 800 pound gorilla in the room is that President Biden is in the kingdom on a state visit to Saudi Arabia and will meet every Arab oil and gas producer head of state. His message is crystal clear, America’s allies must ramp up output to prevent a stagflation nightmare for the global economy and get US gasoline prices down even more so the Dems have a snowball’s chance in hell of winning in November.
The smart money on Wall Street has been bailing out of Seven Sister supermajors, refiners, offshore drillers, oil service companies and the Permian Basin fracking brigade for at least the past month, a telltale sign for me that the Greek Goddess of wealth Lakshmi is whispering bearish sweet nothings in to my brain to short crude oil. Now that Brent is sinking like the HMS Titanic after it hit the macro iceberg, I want to fly to Athens, climb the Acropolis, stand in the temple of Athena in the Parthenon and shout Lakshmi ma ki jai so that the entire Hellenic civilization, whose economic influence peaked in the Med with olive oil trade 2500 years ago gets its financial deliverance from the fiscal jackboot of Germany.
When Macau closed down its nine casinos for a week, I knew that the COVID nightmare had not ended in China, the world’s second largest market for wet barrel tanker cargoes. Higher Fed interest rates are also a pain point for oil prices. The World Bank has identified 70 countries that will face a sovereign debt crisis due to sharply higher US dollar borrowing cost and this will also hit oil demand in the gas guzzler economies of the developing world.
It is mission critical to watch macro/hedge fund selling in the crude oil futures market, which trade 1.5 billion barrels a day when global oil demand is mere 100 MBD. These are the true princes of black gold on the Chicago Merc and the London IPE since they set the price for the marginal barrel of oil that comes out of the Arabian desert or West Texas’s Permian Basin.
Also published on Medium.