Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Reuters energy columnist John Kemp reported that hedge funds and other futures investors are dumping crude exposure,
“Investors continued to sell petroleum futures and options last week as sentiment became the most bearish since the middle of the year, before Saudi Arabia and its OPEC⁺ partners removed extra crude from the market. Hedge funds and other money managers sold the equivalent of 57 million barrels in the six most important futures and options contracts over the seven days ending on November 7. Fund managers have been sellers in five of the most recent six weeks reducing their combined position by a total of 331 million barrels since September 19. The combined position was reduced to just 349 million barrels (13th percentile for all weeks since 2013) from a high of 680 million barrels (64th percentile) six weeks earlier. It was only slightly above the recent low of 282 million barrels (5th percentile) at the end of June before Saudi Arabia and its OPEC⁺ partners deepened their production cuts from the start of July. The progressively bullish sentiment which gripped the market in the third quarter has evaporated during October and November”
“Oil traders turn bearish, daring OPEC+ to cut again” Kemp, Reuters
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Citi global strategist Dirk Willer made the interesting point that U.S. bonds might be a better bet than equities for 2024,
“The peak in U.S. rates is likely in and the Fed is likely done. 2023 has seen the worst performance of duration on record after a final hike. Part of it happened because the market was too aggressively pricing cuts, which has partially corrected. Supply is the other reason for underperformance. While supply fears are still with us, we do think the business cycle will be the primary driver. If U.S. rates have indeed peaked, U.S. rates are a better long than risky assets, as any strength in risky assets only lasts in a soft landing, while rates can do well in both soft and hard landings… we prefer real rates. We move U.S. real rates to overweight in our global asset allocation”
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RBC Capital Markets analyst Tom Narayan believes the slowdown in battery electric vehicle (BEV) sales is only temporary,
“A recent IHSM survey reported fewer US car buyers being ‘open to buying an EV’' in 2023 (52 per cent) versus 2021 (81 per cent) … while we could be experiencing a near-term EV slowdown, we believe medium and long term the EV thesis is still very much intact. We respond to the 3 main culprits often used to explain what is driving this perceived slowdown … BEV pricing is too high. We expect price/mix to largely normalize in the coming years, especially for BEVs… The preferred vehicle form factor in the US is underserved by current BEV offerings. In the US, the market has been shifting away from small cars and towards SUVs/trucks. Despite this dynamic, BEVs thus far have been relatively underexposed to those categories … ) Public charging infrastructure is insufficient to support EV demand. We believe this perception is largely unfounded. Our analysis of EV charging infrastructure and EV adoption rates across the US shows that infrastructure is being deployed ahead of EV adoption. Moreover, the lack of consumer awareness may actually be a bigger factor driving the misperception around charging availability”
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Diversion: Sphere and Loathing in Las Vegas” – The Atlantic
Scott Barlow