Coming Clean with Uncertainty in Energy

August 4, 2022

I’m a bit uncertain.  Not to the level of nervousness, no it’s not that high, but just uncertain. 

A little befuddled maybe.

I can tell because I’m cleaning my desk.

I didn’t even realize it until I caught myself dusting in the middle of a conference call.

It all started with sorting, the gateway drug to cleaning.

Placing papers into neat little piles, monuments to something accomplished.

Then the subtle wiping.  Brushing off dust here and there.

Then I leveled-up. 

Full blown junkie as I reach for the cleaning bottle and a rag.

It’s game on now. 

Eye of the Tiger.

Whelp there goes 20 minutes.

What’s this all about?

Control.

It’s the physical manifestation of my inability to control what’s happening in the financial world and with my portfolio.

I don’t usually find myself cleaning when the portfolio is up and to the right, content to let Jesus Take the Wheel, or whatever market god has determined to shower it with fortunes and my desk with dust.

So out comes the spray bottle and rags when volatility strikes and here we are, talking to myself.

Soooo cleaning again, eh?

I’m can’t hear you.

You can hear me.

No I can’t.

Just log-on.

No.

It’s falling.  Your looooosing money.  Your life’s work.

I’m ignoring you.

Log-on and trade.  No “reposition” . . . just a little, try it, you’ll like it.

It’s fine.  We’ll be fine.

You’re wrong you know, all that work, all that time . . . only for you to be wrong.  All those investors too.  Tsk tsk

Still think I’m right . . . now where did I put that extra rag?

Price is the final arbiter you know.

“Volatility is not risk.” Now leave me alone.

You’re quoting Seth Klarman? You’re not Klarman.

“I’m willing to trade the pains (forget the pleasures) of substantial short-term variance in exchange for maximization of long-term performance.” Go away.

Haha, you’re definitely a bag holder if you’re quoting Buffett. Baggy-baggy-baaaaagggy!

“All of men’s miseries derive from not being able to sit in a quiet room alone.”

BLAISE PASCAL??? You’re quoting PASCAL?  You can barely do 5th grade math, ask Addy?!  Addy!  Can this dude even do common core??

Look, I’m not talking to you.  Well I am, but I’m not logging back on.  I just literally looked at the data before turning it off.  It looks fine, a little bit mixed lately, but it’ll right itself out. Inventories blipped up slightly this week, but still down.

OECD isn’t bad, though off of the insane draws previously.

. . . and China inventories are starting to dip (as they usually do in Q3.

I’m just waiting to see what happens in the fall when the furthest barrels (US) stops flowing so dramatically. SPR releases have been the duct tape patching up the supply/demand shortfall since April 2022. Rip it off and we’ll see what happens. SPR draws will slow post-October from an ~830K bpd average since April to ~300K bpd for FY’23 Congressional mandated sales (this is assuming that the US front loads all of the mandated sales into Q4). So basically AT BEST, we’ll have the equivalent of half of Libya going offline in the coming months, just as the demand pull in Asia gets stronger, or unless you really think Asia will just muddle along here for years.

As for demand here, despite the claims of destruction, liquids in the US sure seems to be draining at the same pace as before. Here’s the thing about US inventories. It’s the cleanest data-set we have. If this is building watch-out. Just look at 2018 and 2020, both times the oil market collapsed. This time?

It’s not the same. So if this is a global fungible commodity and the furthest barrels are still draining and have been draining at the same 2020, 2021 pace, what can you do? Wait it out and see. If the adage the physical side disciplines the financial is true, then we’ll reverse after this narrative shift runs its course (i.e., inflation is tamed, YOLO back to growth/risk assets, and the Fed’s in control/pivoted, which we don’t think they did). We simply can’t swim against a liquidity tide that is moving so strongly in the other direction, so we’ll stay still, stay afloat, and wait our turn. We’ll do as little as we can while conserving our energy . . . and sanity.

Until then I’m cleaning.

You’re being indecisive.

No . . . I’m cleaning.

“The road of life is paved with flat squirrels who couldn’t make a decision.”

Bro! Seriously??

You know I hate squirrels.

Now hand me the rag and be quiet.

I’m just cleaning.

Spray and pray my friends, spray and pray.

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