2019-08-01_Shares_Magazine

AEQUITAS

01 August 2019 | SHARES | 33

Insightful commentary on market issues

zĞƚŐƌŽǁƚŚŝŶƐŚĂůĞƐƵƉƉůLJŝƐƌĞůĂƟǀĞůLJŵŽĚĞƐƚ
ĂƐƚŚĞĂŶŶƵĂůƌĂƚĞŽĨŝŶĐƌĞĂƐĞǁĂƐƌƵŶŶŝŶŐĂƚϭ͘εŵ
ďĂƌƌĞůƐLJĞĂƌͲŽŶͲLJĞĂƌŝŶƵŐƵƐƚϮϬϭΘ͘ŶLJĨƵƌƚŚĞƌ
slowdown in shale growth could actually help oil –
ĂƚůĞĂƐƚŝĨKWĂŶĚZƵƐƐŝĂŵĂŝŶƚĂŝŶƚŚĞŝƌĐƵƌƌĞŶƚ
ŽƵƚƉƵƚĚŝƐĐŝƉůŝŶĞ͘zĞƚĞǀĞŶǁŝƚŚƚŚŝƐĚĞĐĞůĞƌĂƟŽŶŝŶ
growth crude remains weak.
One further factor which may be at work is how
ĮŶĂŶĐŝĂůƐƉĞĐƵůĂƚŽƌƐĂƌĞƉŽƐŝƟŽŶĞĚǀŝĂƚŚĞĨƵƚƵƌĞƐ
ŵĂƌŬĞƚ͘ĂĐŚĐŽŶƚƌĂĐƚŝƐǁŽƌƚŚϭ͕ϬϬϬďĂƌƌĞůƐŽĨŽŝů
ĂŶĚƚŚĞĨƵŶĚŇŽǁƐĂƌĞŚƵŐĞ͕ĞĂƐŝůLJŽƵƚƐƚƌŝƉƉŝŶŐ
actual physical demand.
ĐĐŽƌĚŝŶŐƚŽĚĂƚĂĨƌŽŵƚŚĞD͕ƚŚĞĂŵŽƵŶƚ
ďLJǁŚŝĐŚƚŚĞŶƵŵďĞƌŽĨƐƉĞĐƵůĂƟǀĞ͚ůŽŶŐ͛;ďƵLJͿ
ĐŽŶƚƌĂĐƚƐĞdžĐĞĞĚĞĚƚŚĞŶƵŵďĞƌŽĨ͚ƐŚŽƌƚ͛;ƐĞůůͿ
ĐŽŶƚƌĂĐƚƐƉĞĂŬĞĚĂƚϳΘκ͕ϮεϬŝŶ:ĂŶƵĂƌLJϮϬϭΘ͘
Once the crude price began to roll over, buyers
ran for cover and sellers took over. Net long
ƉŽƐŝƟŽŶƐƐŚƌĂŶŬƚŽϯϯϮ͕ϳϭκĐŽŶƚƌĂĐƚƐŝŶ:ĂŶƵĂƌLJ
ϮϬϭεĂŶĚŽŝůŚŝƚďŽƩŽŵĂƚƚŚĞƐĂŵĞƟŵĞ͘/ŶŽƚŚĞƌ

By Russ Mould

AJ Bell Investment Director

words, as in all markets, running with the herd just

gets oil traders badly trampled. They need to go

against the crowd.

Buyers have begun to gather again, perhaps

ĞŵďŽůĚĞŶĞĚďLJƚŚĞĚŝƉůŽŵĂƟĐƐƚĂŶĚͲŽīďĞƚǁĞĞŶ

tĂƐŚŝŶŐƚŽŶĂŶĚdĞŚƌĂŶ͕ĂĚĞůŝĐĂƚĞĂīĂŝƌŝŶǁŚŝĐŚ

ƚŚĞh<ŝƐŶŽǁĞŵďƌŽŝůĞĚĂŌĞƌƚŚĞŵƵƚƵĂůƐĞŝnjƵƌĞ

of oil tankers in Gibraltar and then the Straits of

,ŽƌŵƵnj͘EĞƚůŽŶŐƉŽƐŝƟŽŶƐŚĂǀĞĐƌĞƉƚďĂĐŬƚŽ

ĂƌŽƵŶĚκρϬ͕ϬϬϬĐŽŶƚƌĂĐƚƐ͘

PUMP UP THE DIVIDENDS

That sits in the middle of the range for the last

ĮǀĞLJĞĂƌƐ͕ĂƐŝĨƚŽƐĂLJĞǀĞŶƚŚĞƉƌŽĨĞƐƐŝŽŶĂůƐĚŽŶ͛ƚ

have a strong feel for where oil is going next, so it

would take a brave investor to take a strong view at

the moment.

The possible bad news is that oil’s weakness

ƌĞŇĞĐƚƐƐŽŌĚĞŵĂŶĚ͘ŶŶƵĂůŽŝůĐŽŶƐƵŵƉƟŽŶŚĂƐ

ŽŶůLJĨĂůůĞŶƚǁŝĐĞƐŝŶĐĞϮϬϬϬĂŶĚƚŚĂƚǁĂƐŝŶϮϬϬΘ

ĂŶĚϮϬϬεǁŚĞŶƚŚĞŐůŽďĂůĞĐŽŶŽŵLJǁĂƐŽŶŝƚƐ

knees.

dŚĞďĞƩĞƌŶĞǁƐŝƐƚŚĂƚƐƉŝŬĞƐŝŶŽŝůŚĂǀĞƚĞŶĚĞĚ

ƚŽĂĐƚĂƐĂďƌĂŬĞŽŶŐůŽďĂůĞĐŽŶŽŵŝĐĂĐƟǀŝƚLJ͕ĂƐƉĞƌ

ϭεϳρ͕ϭεΘϬ͕ϭεεϬ͕ϮϬϬϬĂŶĚϮϬϬϳ͕ǁŚŝůĞƌĞůĂƟǀĞůLJ

stable prices have tended to be a good lubricant.

A quiet oil market is generally more helpful to

ĮŶĂŶĐŝĂůŵĂƌŬĞƚƐŽǀĞƌĂůůƚŚĂŶĂŶŽŝƐLJŽŶĞĂŶĚƚŚĞ

best scenario for investors is more of what we have

now, although history also suggests that periods of

calm never last for too long.

NET LONG OIL FUTURES POSITIONS LIE IN

d,D/>K&d,/Z&/sͳzZZE'

^ŽƵƌĐĞ͗D͕ZĞĮŶŝƟǀ

ANNUAL OIL CONSUMPTION HAS ONLY

FALLEN TWICE SINCE 2000 AND THAT

WAS IN 2008 AND 2009 WHEN THE

GLOBAL ECONOMY WAS ON ITS KNEES