Having unwound our oil and gas exposures (for the most part, we still have WOR and IPL) it is worth reflecting on the reasons for our sell-down.

Working against it, oil has 1) the strategic petroleum reserve release (180mbbls over 6 months) 2) tighter monetary policy 3) price elasticities suggesting that the 6% of global oil and gas supply that is potentially “out of market” translates to ~$100bbl from the pre-invasion price of $70 4) China lockdowns (Shanghai in lockdown, alongside partial lockdowns in other major cities) 5) eventual Iranian deal (maybe 1m bpd) 6) EU demand rationing (consumer preference shift as Europeans willingly choose a lower consumption profile at a given price) 7) demand destruction (this is just movement along a demand curve, in contrast to the shift described in 7) 8) incentive price for US shale producers is far, far below current pricing.

Just how much capex discipline can small US shale producers have?

[so far, a lot].

Still, having made very good returns out of our trade, we are continually reflecting on the above.

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