Publications: Notes at the Margin

A Speculative Market Disruption; The Magnificent 6 (January 29, 2024)

 

Speculators, aka money managers, drove oil prices up last week as the Houthis continued attacking ships in the Red Sea. Refiners and marketers, in contrast, seemed to eschew the buying. Prices rose anyway because the oil market is dreadfully small compared to other speculative financial institutions. Thus, a modest amount of money can move prices in what may be the world’s largest commodity market. Whether they remain high or drop in the coming months depends on how willing oil firms are to build precautionary stocks.

 

Meanwhile, Cushing inventories are falling, as we predicted. The accumulation tied to the end-year inventory tax in Texas has passed. Stocks are decreasing, and, consequently, backwardation will rise in the WTI market.

 

The first section of this report focuses on the impact of Houthi-driven speculative buying. The second part looks at Tesla’s demise. The company had been a member of the “Magnificent Seven,” a term Bank of America analyst Michael Harnett gave to the stocks of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Tesla fell out of the group after its shares plummeted more than twenty-six percent over the first three weeks of January. The shares have much further to fall—perhaps eighty percent—as investors discover that Tesla is an auto company. The firm’s decline warns of developing problems for the energy transition. Contrary to those who say the transition is “irreversible,” recent events across the globe signal it may be stalling. Indeed, some of the optimists’ statements remind us of assertions by Democrats in early 1979 that “Americans would never elect a former movie actor president.”

 

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