Commodities & Energy Sector

原油リスクは誤って価格付けされている 原油リスクは誤って価格付けされている 高い確信を伴うオーバーウェイト サウジアラビアの石油処理・生産施設に対する最近のドローン攻撃により、投資家は原油市場における地政学的リスクプレミアムの再評価に再び注目しています。BCAのBCAの コモディティ＆エネルギー戦略と地政学的ストラテジー サービスが最近示したとおり,1 当社はS&Pエネルギー・セクターをオーバーウェイトとし、引き続き高い確信を伴うオーバーウェイトを維持します。 この原油供給の混乱は、米国の原油在庫が最近減少している時期に発生しており、相対的な株価比率を下支えする要因となっています（原油供給は反転表示、第2パネル）。 また、非OECDの需要は拡大を続けています。重要なのは、BCAのグローバル・リーディング・エコノミック・インジケーター拡散指数が新興市場に牽引されて加速しており、最近の新興国経済における金融政策の緩和が新興国の石油需要を下支えすることを示唆している点です（第3パネル）。その結果、依然として低迷しているS&Pエネルギーの相対的な売上高見通しは反転するはずです（最下段パネル）。 結論： S&Pエネルギー・セクターのオーバーウェイトを維持します。この景気循環性の高いセクターは、当社の高い確信を伴うオーバーウェイト・リストにも引き続き含まれます。詳細は以下のウィークリーレポートをご参照ください。​​​​​​​   1      BCAのコモディティ＆エネルギー戦略と地政学的ストラテジー スペシャルレポート、「政策リスク、不確実性が原油価格見通しを曇らせる」（2016年9月19日付）、ces.bcaresearch.comで入手可能です。

オーバーウェイト 原油とE&Pは切っても切れない関係にある 原油とE&Pは切っても切れない関係にある S&Pの石油・ガス探査・生産（E&P）株は原油価格に密接に連動してきましたが、最近は大きな乖離が生じており、前者（上段）のキャッチアップ局面を通じてその乖離は縮小すると考えています。 天然ガス価格も冬眠から目覚めたかのように最近買いが入り上昇しており、同様に相対的な株価が基礎となるコモディティから急激に乖離していることで異常に低迷していることを示唆しています（中段）。 E&P分野には悲観が深く根付いており、EPSのネット修正が「これ以上悪くならない」という水準にまで沈んでいるため、原油価格がわずかに上昇するだけでも、この不人気な深周期セクターの一角の注目度を高める触媒となり得ることを示唆しています（下段）。 結論：S&Pの石油・ガス探査・生産（E&P）指数は引き続きオーバーウェイトします。詳細は以下のウィークリーレポートをご参照ください。この指数に含まれる銘柄のティッカーは次の通りです: S5OILP – COP, PXD, DVN, HES, APA, MRO, XEC, COG, CXO, EOG, FANG, NBL.

ハイライト   ポートフォリオ・ストラテジー 相対利益見通しの改善、原油価格急騰の可能性の高まりと地政学的リスクプレミアムの上昇、著しく割安なバリュエーション、および極端に売られ過ぎのテクニカル指標はいずれも、S&P エネルギー・セクターに対してオーバーウェイトの姿勢が適切であることを示唆しています。 原油価格および天然ガス価格のインフレ、業界のハイイールドスプレッドの低下、資本支出のより厳格な管理、魅力的な相対的バリューはいずれも、S&P E&Pインデックスをオーバーウェイトすることが有利であることを示唆しています。 最近の変更点 今週のポートフォリオに変更はありません。 Table 1 原油ファクター 原油ファクター 特集 先週の株式市場はレンジ内推移となり、サウジアラビアの石油施設に対するドローン攻撃とそれに伴う急騰した原油価格、そしてFRBの限定的でややタカ寄りの利下げを消化しました（Chart 1）。米中貿易戦争のニュースヘッドラインはやや後退しましたが、近年で最大級の石油生産の混乱が表面化したことは不安材料です。 原油価格は急騰し、原油のボラティリティは急上昇しました。市場参加者が原油価格に地政学的リスクプレミアムを織り込んでいなかったためです（Chart 1）。これは市場参加者への警鐘であり、当社が予想するように、以前は休眠していた地政学的リスクプレミアムが原油市場に強烈に戻ってくれば、長期的な影響が生じます。 Chart 2は、歴史的に原油価格ショックが米国の景気後退と同時に発生していることを示しています。BCAのコモディティ＆エネルギー戦略（CES）サービスが今後数か月でさらなる原油価格急騰を排除していないことを考えると、原油インフレがほぼ倍増することは、最後の一押しとなり景気後退の要件を満たす可能性が高いでしょう。 Chart 1 Mind The Oil Vol Spike 原油ボラティリティの急騰に注意 原油ボラティリティの急騰に注意 Chart 2 Doubling In Oil Prices Are A Bad Omen For Stocks 原油価格が倍増することは株式にとって悪い前兆だ 原油価格が倍増することは株式にとって悪い前兆だ 正確に言えば、1970年代半ば以降、期末の月次データを用いると、年率で91％の原油価格上昇は景気後退と同義であり、偽陽性はありませんでした。これを満たすためには、WTI原油は12月までに概ね$86/バレルまで急騰する必要があります（上段、Chart 2）。これは高いハードルに思えるかもしれませんが、当社のコモディティ＆エネルギー戦略（CES）サービスは、今後数か月で大幅な原油価格上昇の確率を上昇させ始めています。 株式に関しては、過去5回の原油価格ショックのいずれにおいてもS&P 500は著しい下落を被っており、少なくとも歴史が類似するならば、SPXは再び急落するでしょう（中段、Chart 2）。 米国経済は現時点で景気後退には陥っていませんが、外生的な原油価格ショックで景気後退に傾くほど脆弱です。念のために言えば、米国は「良いデフレ」、すなわち原油価格の下落からは恩恵を受け、原油価格の急騰からは被害を受けます。Chart 3はこの逆相関を示しています。 重要なのは、James D. Hamiltonの「Historical Oil Shocks」NBER論文を再読したことが示唆に富んでいた点です.1 この論文でハミルトンは「戦後の11回の景気後退のうち1回を除くすべては原油価格の上昇を伴っており、例外は1960年の景気後退である」と記録しています。ハミルトンは続けて「原油ショックと経済的景気後退の相関は単なる偶然とは言い切れないほど強いように見える…これは原油価格の上昇自体がほとんどの戦後景気後退の単独の原因であったと主張するものではない。 むしろ示される結論は、原油ショックが少なくともいくつかの戦後景気後退に寄与した要因であったということである（強調は当方）」。 Chart 3 GDP And Oil Are Inversely Correlated GDPと原油は逆相関にある GDPと原油は逆相関にある  今週は、景気循環性の深いセクターとその主要サブコンポーネントの一つを更新します。 Table 2 Real GDP Growth (Annual Rate) And Contribution Of Autos To The Overall GDP Growth Rate In Five Historical Episodes 原油ファクター 原油ファクター 原油価格ショックの恩恵を受けるのはエネルギー・セクターのみですが、消費者やその他多くのセクターはエネルギー投入コストの上昇に対処しなければなりません。ハミルトンは自動車生産と産出の関連について重要な指摘をしています：「原油価格上昇の後に見られる主要な反応の一つは、自動車支出の減少、特に米国で製造される大型車の減少である」。 彼はこの関係をTable 2で示しており、当社もこれを再現しました.2 Chart 4は自動車関連のさまざまな経済系列を示しており、現時点のメッセージは厳しいものです。原油価格ショックが発生した場合、車両関連の生産縮小が全体の生産にマイナス影響を与え、景気後退の確率を高めることは明らかです。 Chart 4 What’s Up With Autos? 自動車はどうなっているの？ 自動車はどうなっているの？ 要約すると、地政学的リスクは原油市場に織り込まれつつあり、もし原油が$86/バレル付近まで急騰すれば、この外的ショックは1970年代以降の過去の原油インフレ急騰時と同様に経済を景気後退へ傾ける可能性が高いです。我々は、2018年12月のイールドカーブ逆転時に聞かれたような「今回は違う」と宣言する識者の見解に安易に同調する誘惑を退けます。これらの不確実性の高まりを踏まえ、全体の株式市場の見通しについては慎重な姿勢を維持します。 今週は、景気循環性の深いセクターとその主要サブコンポーネントの一つを更新します。 エネルギーの出番か？ 最近のサウジアラビアの石油処理・生産施設に対するドローン攻撃は、原油市場における地政学的リスクプレミアムの見直しを投資家の意識に再び集中させました（上段、Chart 5）。BCAのコモディティ＆エネルギー戦略（CES）およびジオポリティカル・ストラテジーサービスが最近概説したように、将来の原油価格急騰リスクが高まっていることを踏まえ、我々はS&P エネルギー・セクターをオーバーウェイトのまま維持し、高確信のオーバーウェイトを再確認します。   原油価格の上昇はインフレ期待の上昇にも波及し、S&P エネルギー・セクターの魅力をさらに高めます（中段・下段、Chart 5）。 この原油供給の混乱はタイミングとして不運であり、米国の原油在庫が最近減少していることから、相対的株価比率のサポート要因となります（原油供給は逆転表示、第二パネル、Chart 6）。 Chart 5 Energy Catch Up Phase Looms エネルギーのキャッチアップ局面が迫る エネルギーのキャッチアップ局面が迫る Chart 6 Energy Can Burst Higher エネルギーは急騰する可能性がある エネルギーは急騰する可能性がある 需要面では、非OECDの需要は2015/2016年の製造業不況後の回復開始以来上昇基調にあります。重要なのは、BCAのグローバル・リーディング・エコノミック・インディケーター拡散指数が新興市場により加速しており、新興国の最近の金融緩和措置が新興市場の原油需要を下支えすることを示唆している点です（Chart 6）。その結果、依然として低迷しているS&P エネルギーの相対的な売上予想は反転するはずです（第三パネル、Chart 6）。 このニッチで景気循環性の深いセクターの財務諸表を見ても、大きな懸念材料は見当たりません。ネット有利子負債／EBITDAは約2倍で、幅広い非金融セクターと同等、利払いカバレッジは約5倍です（Chart 7）。同セクターは株主還元に対して以前より慎重になっており、配当性向は過去平均に戻っています（図示せず）。 詳細を見ると、S&P エネルギー・セクターはGICS1の他セクターと比べて最高の配当利回りを誇り、SPXを185ベーシスポイント上回っており、低金利時代に利回りを求める投資家にとって比較的安全な選択肢を提供します（下段、Chart 7）。 実際、S&P エネルギー・セクターは極めて割安で、その28社の合計時価総額は現在、1銘柄であるMicrosoftと同等の価値しかありません。当社の相対バリュエーション指標は急落しており、現在は過去平均から概ね2標準偏差下、過去30年での低水準です（第二パネル、Chart 8）。 Chart 7 Repaired B/S With The Highest GICS1 Sector Dividend Yield GICS1セクターで最も高い配当利回りを有する修復済みB/S GICS1セクターで最も高い配当利回りを有する修復済みB/S Chart 8 Oversold And… 売られ過ぎ、そして… 売られ過ぎ、そして…   エネルギー・セクターのテクニカル面も極端に売られ過ぎており、当社の相対テクニカル指標は深くオーバーソールド領域にあります。このような低水準は過去の反転局面でも見られており、急反発があっても驚きません。セクター内の内部動向も同様に極端で、40週間移動平均線より上で取引されるサブグループの割合や、52週間の変化率がプラスの割合はいずれもゼロ近辺に停滞しています（第四・第五パネル、Chart 8）。 セルサイドのアナリストも同様に悲観的で、エネルギー・セクターの収益および利益が市場全体を上回る確率は低いと見ています。これは短期的な現象にとどまらず、セルサイドは5年という時間軸でも見切りをつけているようです（Chart 9）。このような極端な弱気ムードは逆説的にポジティブです。 我々のU.S. エクイティ・ストラテジーの相対利益成長マクロモデルは、主要な利益ドライバーの多くを正確に捉えることで相対利益トレンドの予測において優れた実績を持っています。現在、相対EPSモデルはスリングショット的な回復局面にあり、これは過度に悲観的なセルサイドのアナリスト群とは著しく対照的です（第二パネル、Chart 9）。 Chart 9 …Undervalued …割安 …割安 総合すると、相対利益見通しの改善、原油価格急騰の可能性の高まりと地政学的リスクプレミアムの上昇、著しく割安なバリュエーション、および極端に売られ過ぎのテクニカル指標はいずれも、S&P エネルギー・セクターに対してオーバーウェイトの姿勢が適切であることを示唆しています。 結論： S&P エネルギー・セクターをオーバーウェイトで維持してください。この景気循環性の深いセクターは当社の高確信オーバーウェイトリストにも含まれています。 探査・生産（E&P）株への追加投資 S&P のオイル＆ガス探査・生産（E&P）株は原油価格とほぼ連動してきましたが、最近は大きな乖離が生じており、我々は前者がキャッチアップすることでこのギャップが縮小すると見ています（上段、Chart 10）。 天然ガス価格でさえ冬眠状態から脱し、最近買い戻しが入り、相対株価が基礎となるコモディティから大きく乖離して異常に低迷していることを示唆しています（第二パネル、Chart 10）。 E&P領域には強い悲観が根付いており、純EPSのリビジョンは「これ以上悪くならない」レベルまで沈んでいます。そのため、原油価格がわずかに上昇するだけでも、この人気のない深い景気循環の一角の評価を引き上げる触媒となり得ます（下段、Chart 10）。 最近ではエネルギーのデフォルト率が上昇していますが、ハイイールドのE&Pオプション調整スプレッドは2015/2016のように急騰しておらず、破綻のシグナルとは言えません。むしろ、最近の原油価格上昇とさらなる急騰の見通しを踏まえると、独立系生産者の債権保有者は一息つける状況です（ジャンクスプレッドは逆転表示、中央および下段、Chart 11）。 Chart 10 Primed To Follow Oil Prices Higher 原油価格の上昇に追随する準備が整っている 原油価格の上昇に追随する準備が整っている 総合すると、原油価格および天然ガス価格のインフレ上昇、業界のハイイールドスプレッド低下、資本支出の管理強化、魅力的な相対バリューはいずれも、S&P E&Pインデックスをオーバーウェイトすることが有利であることを示唆しています。 営業指標に関しては、フリーキャッシュフローは2016年の谷から2倍以上になり、現在は安定しています（第二パネル、Chart 12）。この資本集約型の産業は手段に合わせて運営することを強いられ、負債による拡張計画にはより慎重になっています。キャッシュの使途も精査されるようになりました。キャップエックスは総キャッシュフローに対する比率で、景気循環ピーク時には35％から60％超に上昇しましたが、現在は47％に修正され、過去20年平均をやや上回っています（Chart 12）。 Chart 11 No Yellow Flags 懸念事項はありません 懸念事項はありません Chart 12 Cash Discipline Should Start To Pay Off キャッシュ・ディシプリンは成果を上げ始めるはずだ キャッシュ・ディシプリンは成果を上げ始めるはずだ 幅広いエネルギー分野と同様に、E&P株はどの評価指標をとっても説得力のある割安感があります。例を挙げると、配当利回り差は市場全体に対して150bps、相対的な株価売上高比率は3倍から均衡に修正され、EV/EBITDAベースではE&P株は市場全体に対して35％のディスカウントで取引されています（Chart 13）。 とはいえ、E&P指数に対する我々の建設的見解にはリスクがあります。シェールオイル分野が損益分岐点を維持し、最近の史上高水準の生産を維持するためには、原油価格が$50〜$55/バレルを上回る水準である必要があります。念のため言えば、業界のキャップエックス崩壊は原油価格の急落および大幅な相対株価下落と同義です（Chart 14）。 Chart 13 Bombed Out Valuations 売り込まれ過ぎたバリュエーション 売り込まれ過ぎたバリュエーション Chart 14 Capex Collapse Is A Big Risk 設備投資の急落は大きなリスクだ 設備投資の急落は大きなリスクだ 総合すると、原油価格および天然ガス価格のインフレ上昇、業界のハイイールドスプレッド低下、資本支出の管理強化、魅力的な相対バリューはいずれも、S&P E&Pインデックスをオーバーウェイトすることが有利であることを示唆しています。 結論： S&Pのオイル＆ガス探査・生産インデックスを引き続きオーバーウェイトとします。この指数に含まれる銘柄のティッカーは次のとおりです：S5OILP – COP, PXD, DVN, HES, APA, MRO, XEC, COG, CXO, EOG, FANG, NBL。   Anastasios Avgeriou, U.S. エクイティ・ストラテジスト anastasios@bcaresearch.com   脚注 1      https://www.nber.org/papers/w16790 2      同上。 現在の推奨 現在の取引 サイズとスタイルの見解 ディフェンシブよりサイクリカルを中立で取り扱う（ダウングレード注意） グロースよりバリューを重視 スモールよりラージを重視（ストップ：10%）

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Highlights The attack on Saudi Arabian energy facilities brought oil price shocks back onto investors’ radar screens: Benchmark crude prices in Europe and the U.S. blasted higher following the September 14th attacks on Saudi oil installations. Although the initial price spike largely unwound, the incident demonstrated that oil infrastructure is vulnerable: Saudi officials say output will be restored sooner than markets initially feared, but oil production is now in play for bad actors. The probability of supply-driven price shocks has increased. How vulnerable is the U.S. economy to an oil price shock?: A whole heck of a lot less than it was at the time of the 1973-74 oil embargo. The U.S. is the world’s largest oil producer, and is on its way to becoming a net exporter. Higher oil prices now amount to much more than a tax on U.S. households and corporations. Feature On Saturday, September 14th, Saudi Arabia’s Abqaiq crude-oil processing facility and its Khurais oil field were struck by air attacks that caused multiple explosions. Yemeni forces claimed responsibility, in retaliation for Saudi Arabia’s involvement in its protracted civil war, though the Saudi and U.S. governments asserted that Iran was to blame. As our Commodity & Energy and Geopolitical Strategy colleagues have written, Iran’s involvement makes the situation more ticklish.1 It is unclear where escalating rounds of provocations between the U.S. and Iran might end up, but the geopolitical, energy and economic impacts could be quite serious. There are a lot of moving parts, and we will not rehash our colleagues’ analysis here. From the U.S. Investment Strategy perspective, the biggest takeaway is that Middle Eastern oil infrastructure is more vulnerable to malign state and non-state actors than markets previously realized. It is remarkable that the world’s single most important oil processing facility could be so easily and precisely targeted, though anyone who began flying after September 11th would likely be amazed to learn that passengers once boarded planes without anyone giving the contents of their baggage a second thought. Regardless of how quickly Abqaiq operations are fully restored, Middle East oil infrastructure has been exposed as a soft target. The net economic impact of higher oil prices is the sum total of a broad range of gross subsidiary impacts. The global oil market is therefore more vulnerable to shocks from unplanned supply outages than previously assumed, and should begin to price in a terrorism premium. Any given economy’s exposure to oil price shocks is a more important consideration than it was before the attack on Aramco operations. In this Special Report, we examine the U.S. economy’s susceptibility to an oil price shock. The good news is that we find the U.S. to be considerably less vulnerable to an oil price shock than it was at the time of the Arab oil embargo; the net “tax” from higher oil prices is a good bit lower than it was then, and it is no longer exclusively paid to foreign entities. Six Channels Of Economic Impact We count six primary channels through which oil prices impact the U.S. economy: consumption, capital expenditures, corporate profits, the trade balance, employment and financial conditions (Figure 1). Higher oil prices are unequivocally bad for consumption, because they reduce households’ discretionary income. They should be a net positive for capital expenditures, because oil exploration and production is a capital-intensive pursuit that would likely outweigh incremental cutbacks in investment by businesses in the rest of the economy. They directly increase input costs for the wide range of goods that incorporate petroleum, and the goods and services that use oil as fuel, though other businesses’ reduced profits will be offset somewhat by domestic oil producers’ increased profits. As long as the U.S. remains a net oil importer, they will act to widen the trade deficit; once it becomes a net exporter, possibly within the next few years, they will narrow it. Their net impact on employment and financial conditions is mixed. Figure 1Oil Prices And The Economy Consumption Consumption is the linchpin of the oil-shock/recession narrative, as typified by the 1973-74 oil embargo. During the October 1973 war between Israel and a coalition of Arab states, OPEC members angered by American support for Israel ceased exporting oil to the U.S. and sharply reduced production. Although the embargo lasted just six months, oil prices tripled. Inflation surged, consumer confidence suffered mightily amid ubiquitous images of gasoline lines, and a sharp recession and punishing equity bear market laid siege to the U.S. economy. Chart 1The '70s Oil Shocks ... The overthrow of Iran’s pro-western monarch in 1979 generated a second oil price shock (Chart 1). The U.S. soon entered the first phase of the Volcker double-dip recession, and the notion that oil price shocks cause recessions became entrenched in the introductory macroeconomics curriculum. Filling up the tank consumes a much smaller share of household budgets today than it did in the ‘70s, however, so household spending is nowhere near as vulnerable as it was then (Chart 2). Energy is no more expensive relative to the PCE basket than it was at the end of the ‘70s (Chart 3), allowing fuel efficiency gains to translate directly to increased discretionary income (Chart 4). The household savings rate is lower, as well (Chart 5), clearing the way for consumers to spend more of their discretionary income.2 Chart 2... Took A Big Bite Out Of Consumers' Wallets Chart 3Relative To Other Consumer Prices, Oil Costs What It Did After The Second Shock Chart 4New-Model Mileage Has Doubled Chart 5Consumers Are More Willing To Spend Than They Were In The '70s ... Bottom Line: Consumption will be undermined by higher oil prices, but not nearly to the degree it was in the 1970s, when fuel costs ate up a greater share of discretionary income. Corporate Profits Higher input costs stoked the wage-price cycle in the ‘70s, but low inflation expectations and supine unions have all but stamped out cost-push inflation pressures today. Chart 6... And Economic Output Is Far Less Dependent On Oil Higher oil prices’ negative impact on input costs is as clear-cut as their impact on consumption. Higher input costs helped trigger the ‘70s and ‘80s recessions, dragging down corporate profits and exacerbating cost-push inflation pressures as employees demanded higher wages to keep up with rising prices. That dynamic still applies, but its force is considerably attenuated, as tepid inflation expectations and the decline of unions’ collective bargaining power have all but wiped out cost-push inflation pressures. The continuing shift from manufacturing to services also limits the impact of higher input costs; the oil intensity of the U.S. economy is little more than a third of what it was at the time of the embargo (Chart 6). Growing energy self-sufficiency keeps some of the increased input costs from escaping the domestic economy. It is still valid to think of higher energy prices as a tax on businesses and consumers, but at least some of the tax revenue now accrues to U.S. parties. Shale drillers, pipeline companies, vendors and workers, and the states and localities where they reside, all share in the benefits. That limits the drag on domestic corporate profits, and the second-order drags on fixed investment, employment, consumption and creditworthiness. Capital Expenditures And The Other Channels Energy production’s increasing role within the U.S. economy came to the fore when crude prices collapsed from $107 to $26/barrel between June 2014 and February 2016. Per the ‘70s foreign-oil-dependency template, households would have gotten a huge discretionary income boost, while corporate margins would have surged. Employment and investment would likely have followed, and the consequent increase in consumption would have fed back into even more investment. Improved U.S. terms of trade would have improved living standards, and the trade balance would have narrowed. The U.S. economy no longer has a simple one-way relationship with oil price moves. Those happy growth outcomes did not materialize in the latest oil bust. Consumption growth was robust for the six quarters through 2Q16, but nonresidential fixed investment staggered across 2015 and into 2016 (Chart 7), failing to surpass its 4Q14 level (in real terms) for good until 3Q16. Swooning oil prices had no apparent effect on the trade deficit, which continued to grow at a steady pace (Chart 8). Chart 7Consumption Growth Surged During The Oil Bust, But Capex Growth Crashed Chart 8The Oil Bust Didn't Affect The Trade Deficit, ... Financial conditions tightened as high-yield credit spreads blew out, driven by bankruptcies and defaults in the oil patch (Chart 9, top panel). Oil patch capex evaporated as lenders and equity investors deserted the sector. That would happen in any oil bust, but it spread to the broader economy because shale plays had come to account for a close to a sixth of high-yield bond issuance (Chart 9, bottom panel). The net result was to reduce the supply of loanable funds for non-oil entities, while increasing their cost, bringing about a sharp tightening of financial conditions. Chart 9... But It Tightened Financial Conditions Employment suffered at the margin, as five years of steady oil and gas job gains from 2010-14 were wiped out in 2016 alone. Oil-related employment doesn’t account for a meaningful share of overall employment, but it has been a critical driver of new manufacturing employment since the crisis (Chart 10). The bottom line is that the economy’s failure to respond more positively to 2014-16’s long and steep oil price decline showed that it no longer has a one-way relationship with oil prices. Where sharply lower oil prices would previously have been an unmitigated boon for the economy, they now produce a range of offsetting effects. Chart 10Help Wanted In The Shale Patch Investment Implications Modeling the quantitative impact of a given rise in oil prices on any one factor is beyond the scope of this report, and there is no lack of published studies which have attempted to do so. Research recently cited by Dallas Fed President Kaplan suggests that a 10 percent increase in the real price of oil from a supply-driven oil price shock would lead to a roughly 10- to 30-basis-point decline in real GDP growth.3 In a general sense, we agree with both the direction and the magnitude of those studies’ conclusion. Higher oil prices would be a drag on the U.S. economy, but an increasingly modest one as domestic oil production rises and the country approaches true energy independence. Figure 1 shows that the modest negative net impact on the economy is the aggregation of several individual gross impacts, implying that the key investment takeaways are some layers below the broad macro level. When the arrows conflict within any of the individual channels in the figure, there may be an opportunity for investors to pair exposures. The need to protect vital oil infrastructure could bolster defense stocks, which have long been a favorite of our U.S. Equity Strategy and Geopolitical Strategy services. U.S. airlines, which (with one exception) scorn the idea of hedging their fuel costs, could be an attractive short/underweight candidate to pair with a defense overweight. From a macro perspective, the increased potential for oil price shocks enhances the appeal of TIPS relative to nominal Treasuries. As long as an oil supply shock would act as a headwind for U.S. growth, investors seeking to add some inflation protection to their portfolios should focus on shorter-maturity TIPS. A supply shock pushes inflation higher in the short term, but weighs on it in the long term, as investors revise their long-run inflation expectations lower upon factoring in its long-run growth-dampening effect.   Doug Peta, CFA Chief U.S. Investment Strategist dougp@bcaresearch.com Footnotes 1 Please see the September 16, 2019 and September 19, 2019 Commodity & Energy Strategy and Geopolitical Strategy Special Reports, “Attacks On Critical Infrastructure In KSA Raise Questions About U.S. Response,” and “Policy Risk, Uncertainty Cloud Oil Price Forecast,” available at www.bcaresearch.com. 2 Disposable income is after-tax income. Discretionary income is what’s left of disposable income after the costs of necessities, like food, rent, clothing, gasoline and utilities, are backed out. 3 Kaplan, Robert S., “A Perspective on Oil,” June 19, 2018. Downloaded September 16, 2019 from https://www.dallasfed.org/-/media/Documents/news/speeches/kaplan/2018/rsk180619.pdf.

Dear Client, Owing to BCA’s 40th Annual Investment Conference in New York City next week, we will not be publishing a report on Friday, September 27. We will return to our regular publishing schedule on Friday, October 4, when we will be sending out our quarterly Strategy Outlook. Best regards, Peter Berezin, Chief Global Strategist Highlights The spike in oil prices underscores the vulnerability of key Saudi oil facilities. The fact that OPEC spare capacity is on the low side is an added source of concern. Fortunately, if oil prices do rise again, the impact on the global economy will be mitigated by the following: 1) the amount of oil necessary to produce one unit of real GDP is much lower than in the past; 2) oil prices are currently nowhere near restrictive levels; 3) higher oil prices will boost investment in the energy sector; and 4) unlike in the past, central banks will not need to hike rates to quell oil-induced inflationary pressures. The Federal Reserve is likely to cut rates once more in October and then keep rates on hold through 2020. The Fed will also begin expanding the size of its balance sheet to alleviate tensions in funding markets. Investors should remain overweight equities relative to bonds and start tilting exposure towards EM assets and cyclical stocks later this year. Feature All Aboard The Crude Oil Roller Coaster Chart 1A Price For The Books After gapping up by nearly 20% to $72/barrel on Monday morning – the biggest one-day spike in history – Brent oil prices have retreated to the $64-$65 range, representing a markup of around 7% over last Friday’s close (Chart 1). The near-term direction of oil prices will be governed by how quickly the Saudis are able to restore lost output. Brent fell by over $3/barrel on Tuesday following news reports quoting key Saudi sources saying that state-run Saudi Aramco would be able to bring production back to normal in the next two-to-three weeks. Bob Ryan, BCA’s chief commodity strategist, is skeptical of this reassurance. He notes that the drone attacks destroyed highly sophisticated “one-of-a-kind” equipment that had been specially built for the Abqaiq facility. Beyond the near-term impact, the longer-term question is whether Sunday’s pre-dawn strike is the start of a new violent trend. The fact that much of Saudi Arabia’s oil infrastructure is densely concentrated in the eastern part of the country makes it vulnerable to further attacks. The proliferation of drone technologies is also a source of concern since such devices can be used to wreak significant havoc at minimal cost.  Chart 2Limited Availability Of Spare Capacity To Offset Outages Chart 3Key Strategic Petroleum Reserves Iran’s apparent involvement in the attack further complicates matters. As Matt Gertken, BCA’s chief geopolitical strategist, has argued, the drone strike may have been orchestrated by hardliners in Iran who regard President Rouhani’s efforts to restart negotiations with the United States as evidence of appeasement (some of these hardliners are also profiting from the sanctions by smuggling crude out of the country). President Trump’s decision to sack John Bolton over Bolton’s opposition to making any deal with the Iranians may have created a sense of urgency among the hardliners. In this respect, attacking Iran would probably give the hardliners what they want. All this has occurred at a time when OPEC spare capacity – the difference between what the cartel is capable of producing and what it is actually producing – is below its historic average (Chart 2). Crude oil reserves have also been trending lower within the OECD. Saudi Arabia’s own reserves have fallen by over 40% since peaking in 2015 (Chart 3). Oil And The Economy: How Big A Risk? While a major spike in oil prices is not our base case, it cannot be ruled out completely. If the price of crude were to increase significantly, how much damage would this do to the global economy? History is certainly not encouraging: Every single U.S. recession since 1970 has been preceded by  a large jump in oil prices (Chart 4). Chart 4Oil Spikes And Recessions Chart 5The Global Economy Is Less Oil Intensive The fact that we are dealing with a potential supply disruption only makes things worse. It is one thing if oil prices are rising in response to stronger global growth; it is quite another if prices rise at a time, such as the present, when global growth is under pressure. Despite these concerns, there are four reasons to be optimistic that higher oil prices will not precipitate a major global economic downturn. First, the global economy is less reliant on oil than in the past. Chart 5 shows that the amount of oil necessary to produce one unit of real GDP has fallen by half since 1990. Second, oil prices are still quite low by historic standards. Even after this week’s jump, Brent is still 24% below where it was last October (Chart 6). In real terms, both Brent and WTI are more than 60% below their 2008 highs. Chart 6Oil Prices Are Well Off Their 2008 Peak Third, if oil prices do stay elevated, this will encourage investment in the oil patch, which will eventually bring prices back down. It is worth remembering that rising oil prices reduce aggregate demand in part by shifting wealth from oil consumers, who tend to spend most of their disposable income, to oil producers, who are often inclined to save the windfall from higher oil prices in such entities as sovereign wealth funds. However, if higher oil prices cause producers to expand production, the positive “investment effect” could offset much of the negative “consumption effect” on aggregate demand. Ironically, this means that a transfer of production from easily accessible oil deposits, such as those in Saudi Arabia, to less accessible shale or deep-sea deposits has the effect of increasing overall energy-sector capital spending, even if it does entail a loss of average efficiency. Fourth, higher oil prices today are unlikely to dislodge long-term inflation expectations. This represents a critical difference between the 1970s, 80s, and early 90s when central banks often felt the need to hike rates in the face of rising oil prices (Chart 7). These days, central banks are more likely to see oil price increases – especially those due to supply-side disruptions – as negative income shocks. Such shocks warrant looser, rather than tighter, monetary policy. Chart 7Core Inflation No Longer Driven By Oil Prices FOMC Cuts Rates As Expected This brings us to this week’s Fed meeting. As widely expected, the Fed cut rates by 25 basis points. It also lowered the projected policy rate path. Compared to the Summary of Economic Projections released in June – which suggested no rate change in 2019, one rate cut in 2020, and one rate hike in 2021 – the median dots in the September Summary of Economic Projections released this week show two cuts in 2019, no rate change in 2020, one rate hike in 2021, and one rate hike in 2022. Seven out of 17 participants penciled in a projected third cut for 2019. Judging from the tone of his post-meeting press conference, Jay Powell, dressed in his trademark bipartisan purple tie, was likely among those advocating for further easing. While it is far from a done deal, an additional rate cut in October appears more likely than not. In total, we expect 75 basis points in cuts, equivalent to the amount of easing orchestrated during both the 1995/96 and 1998 mid-cycle slowdowns (Chart 8). The Fed appears to be using these two episodes as a template for its current thinking. Chart 8Will The Fed Follow The 1990s Template Of 75 Bps Of Mid-Cycle Easing? The Fed is also likely to start expanding the size of its balance sheet starting in November. The spike in funding rates this week, while not at all related to the sort of counterparty risk that prevailed during the financial crisis, still underscored the fact that bank reserves are becoming increasingly scarce. To the extent that the Fed creates bank reserves when it purchases assets, this would help alleviate funding pressures. We are assuming that rate cuts beyond 75 basis points in total are possible. However, this would require a significant deceleration in U.S. growth, which looks unlikely. Real personal consumption spending is on track to increase by 3.1% in Q3, according to the Atlanta Fed’s GDPNow (Chart 9). While business capex spending continues to be weighed down by the manufacturing recession, rays of light are emerging. Industrial production rose by 0.6% in August, well above the consensus forecast of 0.2%. Despite an ongoing drag from the auto sector, manufacturing output rose by a solid 0.5%. Chart 9Inventories And Net Exports Have Subtracted From Growth Chart 10Easier Financial Conditions Will Boost Global Growth Globally, the growth picture remains shaky. Looking out, the sharp easing in financial conditions should boost activity (Chart 10). The nascent de-escalation in trade tensions, if sustained, should also help. As such, we continue to expect global growth to stabilize in the coming months and accelerate into year-end. Investment Conclusions Oil prices are likely to rise over the next 12 months. Geopolitical tensions could contribute to any upward pressure on the price of crude, but most of the increase in prices will probably be driven by stronger global growth. If global growth does pick up, the dollar will probably weaken (Chart 11). A weaker dollar will further boost oil prices, along with other commodity prices (Chart 12). Chart 11The Dollar Is A Countercyclical Currency Chart 12A Weaker Dollar Bodes Well For Commodities Stronger global growth, rising commodity prices, and a weaker dollar will hurt safe-haven government bonds but boost stocks. EM and cyclical equity sectors should gain disproportionately.   Peter Berezin, Chief Global Strategist Global Investment Strategy peterb@bcaresearch.com   Strategy & Market Trends MacroQuant Model And Current Subjective Scores Strategic Recommendations Closed Trades