Our oil trade is up 25% since January (ticker: USO). And yet, we still hold on.
Global spare capacity remains razor-thin and geopolitical possibilities “in the pipeline” could only put prices higher.
Already priced in is the US embargo on Iranian oil which goes into effect November 4.
What’s not 100% clear and therefore not priced in - whether Venezuela is headed for collapse, if Syrian civil strife will further curtail shipments, Shale pipeline bottlenecks, force majeures in Nigeria’s Bonny system and more unplanned outages in the US or Canada.
Even without these known unknowns possibly constricting supply, estimated spare capacity in 2018 is 1.8% of global demand. In 2019, it’s estimated to be only 1%. For comparison, in 2007, spare capacity stood at 2.4% of global demand.
Back then prices were $150/bbl.
Today, they’re $73/bbl.
Weekly Update through September, 21 2018 The S&P 500 added 86bps, even as the Dow Jones jumped 2.25%, the Russell 2000 declined -53bps, and the Nasdaq lost -28bps.
As for US bonds, they were down -26bps.
Globally, the MSCI World Index added 1.56% and the Barclays Global Aggregate Bond Index gained 6bps.
The Euro Stoxx 50 added 2.58% in local-currency (Euro) and 3.49% in USD. Meanwhile, the Topix gained 4.36% local-currency (Yen) and 3.84% in USD.
