In this article, I’ll share my thoughts on how I plan to navigate the portfolio. I’m going to break this up into 4 buckets:
Short and medium-term oil trades
Longer-term (12+ months) and energy stocks
We will go in reverse order here so you can get a sense of where I’m coming from.
Longer-Term
If you take a step back and look at the broader oil market setup, a few things should stand out:
Consensus continues to expect a surplus of ~4 million b/d “if” the Strait of Hormuz goes back to normal. Sell-side analysts assume traffic doesn’t need to return to normal. With the Oman lane operating at 5-6 million b/d, Iran lane flow only needs to be ~4 million b/d (or 2 VLCCs a day) for the flows to resume to normal.
In a +4 million b/d surplus, the loss in global oil inventories will take ~550 days to replenish (~2.2 billion bbls lost). If you assume half of the surplus will make its way to visible oil inventories, it will take 300 days to replenish (2 million b/d on 600 million bbls). And that’s assuming we go back to the 2025 highs.
In essence, if you assume some path back to normality, it would take 1-2 years to replenish inventories to the level that will push Brent back into the $60s. If you assume a long enough time horizon, this explains in part why the consensus remains so bearish on oil and why people think this is a transitory event.
But it’s not transitory... obviously