Oil & Gas Storage and Transportation
Oil prices will rise tactically due to supply risks. Recent developments indicate escalation of the conflict with Iran in the Middle East and confirm our expectation of energy supply disruptions and oil price spikes in the short run.
Volatility will remain the key dynamic in oil markets in the aftermath of the surprise Hamas attacks against Israel on October 7. The risk of a major oil supply shock has gone up, but meanwhile supply constraints will remain at variance with global growth problems stemming from restrictive monetary policy over the next 12 months. Favor bonds over stocks, large caps over small caps, defense and energy stocks over other cyclicals, and US equities relative to global equities.
China’s oil demand growth will moderate to a still robust 4%-6% in the next six-to-nine months. We recommend that investors in China’s onshore and offshore stock indexes overweight energy producers.
We are strategically bullish on the outlook of the energy sector. Domestic and external political constraints asserted themselves, restraining the most negative impulse against this sector by the Biden administration. Go long energy versus cyclicals (ex-tech).