Time in the Market
               Not Timing the Market

ARE WE ABOUT TO EXPERIENCE THE OIL SUPERCYCLE ?

Over the past 6-9 months, the financial choir has been singing the dulcet tunes of’ recession,’ which will sit in the charts for the next 12 months.

This chorus of this power ballad will be supported by rising interest rates, devalued currencies, crashing stocks, doubled energy prices, and an ongoing war on someone else land. However, the oil industry is bucking the trend and singing a different tune.

To provide some background, a commodities Supercycle is a prolonged period of rising prices for a wide range of commodities, typically lasting a decade or more. During such a period, the prices of oil rise due to high demand outstripping supply. Despite the ongoing war and the looming possibility of a recession, the oil industry is poised to ‘Reach the moon’ in terms of Pnl.

But why is this happening? Isn’t there a war on, and isn’t liquidity the new game in town, plus according to the narrative, we’re about to be hit with the world’s largest, soft, medium, gentle, aggressive, short-lived, mild, passing tsunami ripple like recession, which is going to cause a figurative’ black swan’ to fly over our biblical ‘BIG RESET,’ coming this year !!!

Despite all this, the oil industry is on course for a Supercycle; as the demand for the ‘blackgold ‘is set to remain high due to the growth of emerging markets and technological advances and investments in renewable energy, are not yet at a stage where they can fully replace oil, meaning that the oil demand will continue to grow.

So why on earth will there be a supercycle ?

Recently Russia announced it was cutting its Oil output by 500,000bpd by march this year. While many think this is the effect of the Sanctions, some of us believe it’s to drive the price up. Which frankly is good business in my eyes.

With this drop in export and Chinese demand expected to recover as the country ends its Covid Zero policy, could prices rise above $100 from their current level of around $80 ?

A lack of investment in refining capacity has left the world undersupplied, hence by 2024 we could run into an enormous problem. But within the Oil Industry, Problems are Turned into profits. Welcome the Supercycle

Over the past few years, oil prices have been unpredictable, dropping below $20 during the COVID-19 pandemic and then rising to almost $130 due to Russia’s invasion of Ukraine, which disrupted the already insufficient global supply. Refineries were operating at maximum capacity, causing the cost of transportation fuels to soar before declining as countries searched for alternatives.

It’s worth noting that there have been various supercycles throughout history, such as the post-World War II era spanning from the 1950s to the 1970s and the period from the late 1990s to the mid-2010s, which was partially fueled by China’s rapid economic growth.

Now let’s talk about China.

China has recently lifted its lockdown policies, which has the potential to cause a surge in demand for oil. If China’s oil demand returns to the previous trend line, we could see an increase of 700,000 barrels per day. It is worth noting that in 2021, China’s oil consumption went above trend due to pent-up demand from the 2020 lockdowns. If a similar pattern occurs in 2023, the increase could exceed one million barrels daily.

It is essential to recognize that the timeline for oil investment can be extensive. Developing a giant oil rig can take years; in some cases, such rigs can produce oil for over a decade. As a result, there is a significant time lag between oil investment and oil production. We are currently witnessing the effects of historically low oil and gas investment levels since 2016, which are manifesting in lower prices.

Therefore, the investment must be substantially increased to maintain current production levels.

Watch this Space.

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