Commentary provided by Brent Belote of Cayler Capital
We first turned bullish oil in April 2020, and I’m slowly starting to feel like it has run its course. We are still holding long positions, and prices will likely overshoot on the high side, but for the first time since the pandemic, we are starting to see actual demand destruction. We are now entering the price area where politicians begin feeling the pressure to lower the energy costs passed onto Americans. I’m also worried that high energy prices coupled with a tightening Fed will lead to a general slowdown in the economy.
Geopolitics and weather were the significant drivers of last week. Iran negotiations are moving forward quickly, with the Biden administration folding like a lawn chair under the pressure to lower oil prices. Secretary Blinken issued sanctions relief on Iran’s civilian nuclear activities as a sign of goodwill to move the talks forward. This will likely lead to a poorly negotiated deal with Iran bringing more oil onto the market in the first half of 2022. This should loosen the balances and help alleviate the tightness we’ve had in the oil markets for the last few quarters, again a further headwind that will likely cap prices in the second half of the year.
On the weather front, extreme cold across the Southern US knocked out multiple refineries, leading to product outages, further tightening an already strained heating oil and gasoline market. I’ve even heard some physical traders comment that the New York region may run out of heating oil and diesel fuel if they can’t source more barrels. We never really run out of oil since the price will move accordingly to open various arbitrages worldwide, but the volatility around heating oil is highly elevated right now.
Lastly, we are in the process of closing the fundraising round for the Cayler Capital token and have some allocations available if anyone wants to invest. Based on the current return of +11.58% for the year, we expect to issue a dividend of 4% for the first quarter. Dividends are subject to change given returns and assets raised, and past performance is not indicative of future results.
Past performance is not necessarily indicative of future results.