Tankers and Natural Gas: Two Beneficiaries of Oil Rout
The big news last week were the developments in the oil markets and how the West Texas Intermediate (WTI) May contracts went negative as they came up on expiry.
We spoke with Chase Taylor of Pinecone Macro Research on Friday about his thesis to be bullish on natural gas and tankers that can store oil at sea to capitalize on higher future expected oil prices.
- Taylor believes the carnage and even the negative oil prices we saw in May WTI contracts are likely to repeat in June, as there doesn’t appear to be any short-term demand spike to clear the storage.
While a number of investors believe the tanker trade is a 5- to 10-year theme, Taylor believes the economics are particularly attractive over a shorter horizon.
- He considers the day rates that tankers are earning as so high that the one-year cash flow a number of these tankers will earn is greater than their current market capitalization—with the bullish thesis not yet priced in.
While a number of investors think of natural gas and oil as two elements of the same trade, Taylor has a very different outlook for natural gas.
- Supply shrinkage: 40% of natural gas production is coincident with oil development, and well shut-ins with the oil collapse will bring down natural gas production.
- While oil demand is seeing a massive hit with reduced driving and travel, natural gas is not seeing the same drop.
- This is a classic supply-and-demand-balance question, and it appears supply will drop more than demand.
- Taylor sees natural gas potentially doubling from its current less than $2 to over $4.
Please listen to the full conversation with Chase Taylor below.
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.