I’ll start off by saying that while I’m not disappointed by the results so far this year (+12.8%), it’s not what we had hoped for. There have been a few bright spots in the portfolio like our allocation in Alibaba and Suncor, while our hedges like our short position on XLE have materially dragged returns.
We have de-risked a meaningful portion of the portfolio with our oil weighting exposure at the lowest point since we started the HFI Portfolio. We remain fully invested in our HFIR Natural Gas Portfolio along with our natural gas trading portfolio. The lack of production growth going into Q4 coupled with the incoming LNG demand jump would create a disconnect for balances this winter.
On the oil side, we continue to remain cautious as implied US crude oil production average for September is on track for ~14.24 million b/d, while the consensus estimate for Q4 is ~13.7 million b/d. The outperformance in US crude oil production will continue to weigh on oil prices especially as visible oil inventories start to show builds.
Looking across the energy complex, we don’t find most energy stocks trading at very attractive valuations. The only sector we still find very undervalued is in the offshore space, but we think timing the incoming cycle will be the most important part.
With that said, let’s dive into the position compositions and our plans for the future.