We’ve continued to try to find value in the energy space, by trading around and out of winners in the independent E+P’s and majors that have recently peaked – at least for now. We’ve assembled a melange of energy focused names that defy categorization – and we shouldn’t care about that. The point is to make money – period.
Looking over our portfolio of current energy names, there’s a lot to like: a targeted natural gas name (Southwestern), a LNG provider (Cheniere), a start-up Permian basin SPAC (Silver Run Acquisitions) and a refiner (Valero). In adjusting this strange portfolio, I’d feel safest adding to one of them only – Valero. It seems most poised to take immediate advantage of the energy space right now.
Why? Well, several factors are working to the advantage of the refiners today, where they are working to the disadvantage of oil producers in general. The most important has been the very, very slow rebalancing process that has occurred in the shale plays here in the US. I had thought very strongly that we’d be much further along in the process of rebalancing; So far, we’ve seen perhaps a 600,000 barrel a day decline in tight oil production from our highest point in 2014. I would have thought that we could have seen more than a 1.5m barrel a day drop by now, assuming the level of debt and negative cash flows in independent oil producers at $45 crude.
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