Oil's Sell-off and Our Business Decision

November 17, 2023

Jab step to the right.

He bites.

Swing the ball to the left and attack his front foot. He can’t pivot fast enough so I’m past him. Keep him on my hip so you know how he’s positioned as you drive-in. Expect the contact at the rim so you can absorb it, then shoot the layup while leaning into the basket. It’s everything I’ve been teaching my 9 year old to do lately, and I’m actually doing it on the court.

I played in a 2 v 2 basketball game last night. Community park, pick-up game, friendly guys, 70 degrees. It’s perfect. You face off against two college atheletes and you better bring it. You can’t out jump them, and you definitely can’t out quick them. So you have to play smart, you have to be patient, and you have to out think them if you can. What’s their weakness? Are they right or left handed, do they jump when they sidestep, do they like to go for the block?

You ask these questions because you have to.

They’re simply too fast, so if you’re trying to reacting in real-time, forgetaboutit. You’ll miss it, the half-second opening to drive, the micro-second to shoot. 2 v 2s are quick, and the scores come in bunches. If you fall behind, then you’ll start panicking. You start throwing up low-percentage 3 point shots to try and catch-up, but near the end of the game, you’re doing it with tired legs. Those 3s were probably best suited at the beginning of the game, but again you’re simply reacting now.

Yeah I’m probably overthinking the game. I tend to. Well old guys tend to because that’s what old guys can do.

Dunk like these young kids? Nope. Think? Maybe.

That game last night though was a microcosm of my week. So many questions, so many decisions. What’s the board look like and should you take any action. If so, what?

If I read back a transcript of all my calls this week, it’d be this . . .

This selloff is brutal . . .

What do you think?

What’s causing it?

You going to lighten?

We in trouble?

Are we building inventories?

Is demand that bad?

Supplies that robust?

What’re we missing?

Is the Supercycle thesis dead?

Do we pivot? If so, where?

That’s it. Every call, every DM, every text. Unrelenting. Why wouldn’t it be though when you’re seeing this on the screen.

That cliff dive didn’t occur in the past day or two. Zoom out further and you’ll see that the rise since the October 7 Hamas attack has been effectively faded.

How does a commodity fall 15% in the matter of a few weeks? There’s a smorgasbord of reasons. Concerns about the global economy, fading geopolitical risk/tensions in the Middle East, and seasonal weakness colliding with softer demand/higher supplies. Once selling begets selling though it really begins to slide. Once there’s no clear reason for upside, buyers too will step aside. Yeah not sure why I Dr. Seuss’d that, but point taken, or given.

Selling BEGOT selling, and no one’s willing to step in front of the train. When the train’s at full speed, it can snatch souls. Just think about stepping in front of this.

6’9”, 250lbs of Lebron James muscle charging at full speed. What do you do? What do you do when you’re 6’ nothing, 196lbs of Kyle Lowry and you see the train.

For us old guys . . . you make a business decision.

That’s right. Stepping aside is a “business decision.” Kyle Lowry is making one here with a half-hearted slap, and I understand. Them’s a freight train coming down the lane, and it wants those two points . . . and your soul.

Lebron wants that two, the younglings want the glory, and the oil market wants your positions and it wants your money.

You can’t have it though youngblood. You can’t have it because I’m old enough to know that it’s not worth it. Contesting and possibly lowering your field goal percentage for that 2 point layup/dunk really saves me, what? A risk adjusted 1 point? That’s an asymmetrical trade young man, especially if I get hurt. You can’t have the replay humiliation.

Step back and look at the game board too. It’s tied 5 to 5, and we’re playing to 11, so we’ve got a ways to go.

So let’s make like Kyle Lowry . . . let’s make a business decision.

Despite all the trading, the hem and hawing, and the thousands of data points we continuously grind. Old guys know, energy is all about inventories. You either have them or not. So sell? Stay? Flee? We go back to the basic principal. Tell me the inventories and I’ll tell you the price.

Should Brent be $80? $85? $90? We repeat . . . tell me the inventories and I’ll tell you the price. I will tell you fair value . . . within reason.

The chart above is updated through the first two weeks of November, so those inventory figures are pretty close to contemporaneous. So are inventories loose? Doesn’t appear to be. They may not be drawing much, but they certainly aren’t building.

I suppose the crux of all this is whether you believe OPEC+ will let inventories build in the coming days (if it even does). Whether demand will crater because of a global recession, and OPEC+ will refuse to step-in front of such a deterioration (which again we are not seeing). Whether OPEC+ will make its own “business decision” to step-aside.

Yeah . . . didn’t think so. For all the reasons we’ve already written about in prior posts, for the Saudis, it’s a contract year. They NEED oil prices to be higher and stay higher.

So maybe young man, the selling is overdone. Maybe coming down the lane with such force and disregard for humanity or anything fundamental means that this flurry of activity is uncontrolled. Maybe it’ll affect that shot.

So I made the business decision . . . and he missed the layup.

We ended up winning. 11 to 5. We were slower, we were out rebounded, and we couldn’t keep up laterally, but we played the odds. What we lacked in athleticism we made up for in tenacity and strategy.

We simply made . . . a business decisions.

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