12-04-2020, 09:22 AM
Some interesting thoughts on the recovery from a message board I follow.
A few days ago, I posted my argument that about 8 mmbpd of oil demand is missing due to travel issues, and will ALL come back in 12-18 months.
But I wanted to articulate my virus model a little more.
Some very smart folks (including the smartest of all, our own Doom) are still looking at weekly oil inventories trying to gauge demand and market tightness. Normally this would be ok, buttt... right now, oil demand is basically an upside down virus chart. That's it. Bad virus numbers mean fewer vacations, fewer visits to the parents, fewer trips to the malls and restaurants. And the virus number are bad right now...
So I think the smart thing to do, is to look at forward looking virus models, not backward looking oil demand reports.
And here's the thing; we have a fixed end-date for the pandemic. It's April 2021. Why? Coronaviruses are *INTENSELY* seasonal. Crowded indoor spaces, low vit D, etc. But the case for April 2021 is even stronger than that. Herd immunity from infection is coming, maybe as soon as February. Mass vaccination will be ramping up, too. Initially mass vaccination will be ineffective, because it will be targeted at vulnerable shut-ins (i.e., not the people spreading), but by April the vaccination will be hitting spreaders too. Either way, by April the virus cases will be crashing to zero due to seasonality, and we will have a six month grace period for mass vaccination before the weather turns unfavorable again. Small changes in the vaccine schedule won't matter given the April seasonality.
Enter the Biden campaign. (Don't want to be political, but it must be noted) Biden has promised a first 100 day mask mandate (FDR impersonator!) But the real reason is introduce a placebo that is already being taken, and take credit for favorable weather. Scorched earth, delay vaccine, trash economy, and kill as many as possible until January, then take credit for the nice weather. The overriding point is that Biden's team has the same virus model I do, and they want credit.
So I've argued that oil demand will come back in 12-18 months. That's the base base. But, but, but, what if *ALL EIGHT MILLION COME BACK BY APRIL*??? We could have the most amazing summer travel season in history, next year. And oil could hit $60, or even $100 next year, depending on how strong the demand is, and how much excess money supply there is.
My base case is still for a slower recovery of 12-18 months. The reason is there will be stickiness. Residual fear, anti-maskers unwilling to fly, Oceana still beating its citizens, vaccine cards, quarantines for the unvaccinated, etc.
But whenever the FEAR ends, the pandemic is going to be over in April. And I am planning and investing accordingly. Good luck!
A few days ago, I posted my argument that about 8 mmbpd of oil demand is missing due to travel issues, and will ALL come back in 12-18 months.
But I wanted to articulate my virus model a little more.
Some very smart folks (including the smartest of all, our own Doom) are still looking at weekly oil inventories trying to gauge demand and market tightness. Normally this would be ok, buttt... right now, oil demand is basically an upside down virus chart. That's it. Bad virus numbers mean fewer vacations, fewer visits to the parents, fewer trips to the malls and restaurants. And the virus number are bad right now...
So I think the smart thing to do, is to look at forward looking virus models, not backward looking oil demand reports.
And here's the thing; we have a fixed end-date for the pandemic. It's April 2021. Why? Coronaviruses are *INTENSELY* seasonal. Crowded indoor spaces, low vit D, etc. But the case for April 2021 is even stronger than that. Herd immunity from infection is coming, maybe as soon as February. Mass vaccination will be ramping up, too. Initially mass vaccination will be ineffective, because it will be targeted at vulnerable shut-ins (i.e., not the people spreading), but by April the vaccination will be hitting spreaders too. Either way, by April the virus cases will be crashing to zero due to seasonality, and we will have a six month grace period for mass vaccination before the weather turns unfavorable again. Small changes in the vaccine schedule won't matter given the April seasonality.
Enter the Biden campaign. (Don't want to be political, but it must be noted) Biden has promised a first 100 day mask mandate (FDR impersonator!) But the real reason is introduce a placebo that is already being taken, and take credit for favorable weather. Scorched earth, delay vaccine, trash economy, and kill as many as possible until January, then take credit for the nice weather. The overriding point is that Biden's team has the same virus model I do, and they want credit.
So I've argued that oil demand will come back in 12-18 months. That's the base base. But, but, but, what if *ALL EIGHT MILLION COME BACK BY APRIL*??? We could have the most amazing summer travel season in history, next year. And oil could hit $60, or even $100 next year, depending on how strong the demand is, and how much excess money supply there is.
My base case is still for a slower recovery of 12-18 months. The reason is there will be stickiness. Residual fear, anti-maskers unwilling to fly, Oceana still beating its citizens, vaccine cards, quarantines for the unvaccinated, etc.
But whenever the FEAR ends, the pandemic is going to be over in April. And I am planning and investing accordingly. Good luck!