THE STATE OF OIL & GAS

While nothing we don’t already know, this Bloomberg piece provides a terrific insight into how pervasive and powerful the ESG hysteria really is (even among the “Big Boys”) and what that means for the energy market:

We have relationships with approximately 400 institutional investors and close relationships with 100. Approximately one is willing to give new capital to oil and gas investment. The story is the same for public companies and international exploration. This underinvestment coupled with steep shale declines will cause prices to rocket in the next two to three years. I don’t think anyone is really prepared for it, but U.S. producers cannot increase capital expenditures: the OPEC+ sword of Damocles still threatens another oil price collapse the instant that large publics announce capital expenditure increases.

As we’ve been saying for some time now, all this is fuel (excuse the pun) for an energy crisis that will make the 1970s oil shock look like a gentle Sunday stroll:

The fact of the matter is there is a lack of appetite for finding and developing new reserves being echoed with other majors (who account for 30% of the world’s O&G production) and the demand for oil continues to rise. Well, it’s easy to figure out an energy crisis (or oil way above $100) will be the outcome.

You don’t have to be too quick between the ears to work out that a drop in capex corresponds to a drop in supply. Hmm… a good old fashioned supply crunch is coming and there is little the majors can do at this stage to head it off.

Position yourself accordingly!

CONTRARIAN SIGNS IN COAL

When the largest coal ETF (KOL) was de-listed in December last year we suspected the worst was already in for coal stocks and the sector was about to turn the corner:

You can’t get a more text book illustration of the contrary signs in ETF listing/delistings. KOL listed near the top of the market for coal, and it is delisted near the bottom. Well done! Congratulations, you muppets. We could say “don’t trust those scumbag ETF providers,” but all they are doing is fulfilling the demands of the average village idiot investor. Their job, after all isn’t to tell investors what to buy or why but simply to provide the crack to the junkies.

And sure enough, a basket of coal stocks has more than doubled since then, as @BvddyCorleone pointed out:

SOUTH AFRICA: FROM BAD TO WORSE

Let’s talk South Africa — a topic we haven’t discussed in these missives yet. But Insider members will know that for quite some time our thesis has been that South Africa is going to “mean revert” to the rest of Africa. The way we see it:

The place is a delicious combination of corruption, deep seething ethnic hatred, spiced with an increasingly marxist loving group of thugs. What’s not to like?

Over the past couple of days, the situation has gone from bad to worse. Here’s BBC on the topic:

The South African government plans to deploy 25,000 troops after days of widespread looting and violence.

The military deployment – to counter riots sparked by the jailing of former President Jacob Zuma – would be the biggest since the end of apartheid.

At least 117 people have died and more than 2,000 have been arrested in South Africa’s worst unrest in years.

Hundreds of shops and businesses have been looted and the government says it is acting to prevent food shortages.

Citizens are arming themselves and forming vigilante groups to protect their property from the rampage.

Possible ripple effects? Well, the country is the world’s top producer of platinum and palladium and the second-biggest producer of gold on the planet. The jury is still out on the long-term impact on the global resource markets, but — combined with already strained supply chains from COVID-19 lockdowns — it surely ain’t bearish.

OFF-THE-BEATEN-PATH WAY TO TRADE SOUTH AFRICA

In our Hedgies Uncut chat group, Tim Staermose chimed in with a way to play the aforementioned unrest:

For anyone looking at second order effects of South Africa meltdown 80%+ of the world’s platinum and platinum group elements are sourced from mines in South Africa. So there can quickly be supply problems. I own Zimplats (ASX) in quantity. Out of the frying pan into the fire you might think being in Zimbabwe, but that’s not the case. It has been operating and producing successfully there since early 2000s and is a pillar of the economy. Zimbabwe government does very well from it and actually lets them get on with business largely undisturbed. Valuations very attractive at something like 3.5x forward P/E. Palladium is the key. It’s at more than twice the price of Pt and Zimplats’ ore is very Pd rich.

We dare you to mention this trade at a cocktail party or BBQ. But if commodities keep inching higher (as we expect them to), Zimplats could run like the police are after it.

BEWARE THE WITCHES

Presented with no further comment…

With that, turn off the idiot box and enjoy your weekend!