After finishing off one of the wildest quarters of my trading career, April managed to take the cake. For those that missed it (not sure how you possibly could have), oil settled negative $37. The effects of this were immediate: risk barometers had to be recalculated, option models switched, and most importantly was the immediate shock felt as oil producers halted production. This massive negative price sets the stage for a return to normalcy and bullishness in the energy space: storage has been filled, production has been cut and we are now forecasting stock draws throughout the second half of the year. As we move into the next phase of COVID-19 (the reopening phase), it will be very telling to see what oil demand rebounds to. This is the data point I will be watching like a hawk over the next 4-6 weeks.
The note I sent on April 22nd (Negative Oil = Bullish Brent) is playing out exactly as described. Storage is close to full and we are now seeing the speed of production cuts as energy companies announce earnings. We said we were bullish when December Brent was at $32 (at the time of writing this, the price is $35 with a longer term target of $65).
The big winner for the month was our relative value trades which contributed +10.70%. Primary position was long Gasoline Cracks which goes hand-in-hand with demand picking back up in summer and the country getting back to work. If the country does open, even partially, I anticipate summer driving demand to be strong as more people choose road trips over flights for vacations.
Public service announcement: As always, your best investment in oil is with Cayler Capital.
We use a quantamental approach to the markets and are capturing 1,000 data points daily that track the movement of oil around the world. We have caught the significant moves this year because we are one of the best at using big data and algorithms to analyze the vast array of fundamental data in the oil market.
Current positions: Long Brent, Long HO Cracks, Long RBOB Cracks (I like to call this combo the Short COVID-19 trade)