Birkoa Newsletter 9 (OPEC+ Breaking News)
Dear Birkoa LPs:
Very important news breaking out of OPEC+, enough that I felt the need to write another letter. The Saudi Energy Minister just reiterated the points I've been making in the past several newsletters re: the discrepancies between fundamentals of physical crude oil markets and the paper, futures markets, as well as the bogus theories about demand destruction, to make clear that eventually said gaps would lead OPEC+ to act in favor of balancing the markets by raising cost of crude oil. That might mean a production cut is on the table for the September meeting. He also highlighted another unsustainable factor that has worked to artificially keep the price of paper crude lower - lack of liquidity in the futures markets due to heightened volatility pressures. That makes sense and only supports our eventual thesis.
Higher crude oil prices to the tune of $125/barrel is likely and the demand destruction story is also not true. This analysis by Pierre Andurand last month, the world's most successful oil trader, makes that clear.
I have told you in the past that Birkoa strategy is there to see through a view of the world come true, and the entire success of the strategy hinges on being fully committed to it despite the volatility of the day. Getting a statement like this straight from the source is reassuring as weeks of irritation has seeped in due to continued downward movements in oil prices.
In another news, China has also lowered its benchmark lending rate and continued to show monetary easing, which is the exact opposite of where the U.S. is at. This is why the bull case for equities in China. Whether or not it shows immediate impact remains to be seen but policy-wise we're right there to take advantage of given the gradual buildup of our positions there.
Sincerely,
Pranjit Kalita
Chief Investment Officer