Oil markets
The oil market does look wobbly. There’s been plenty of positive inventory management (SPR release etc), but also plenty of negative shocks (OPEC+ production cut).
What do we mean by wobbly? Well, prices are down a lot. US output is grinding higher, however slowly. The spread between near term and longer dated futures is close to contango (bearish).
Mostly, I think it a sign that sizeable policy tightening (rates, dollar) is hitting global marginal demand, which is showing up here.
It’s important to note also that policy works with a long and variable lag. So, if it is some weakening of marginal demand due to rates, AND we’ve got further rate hikes to go (terminal rates will be higher than the current rates), it’ll only exacerbate those forces of further weakening.
We’ve got very little oil exposure across our direct equity portfolios, really none in the Core Equity Portfolio (flagship) and a slight underweight in the concentrated, largely sector neutral 10-15 stock portfolio.
So, no call to action. We used to have a massive energy overweight, it worked very well, we sold out, and oil stocks continued to run, which meant we got off the trade much too soon.
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