Crude oil has so far not reached the heights expected by industry insiders, including senior executives at Exxon Mobil and Chevron. The reasons include China’s decision to stop building its inventories, which reduced demand by 3-4 Million Barrels per Day (MMB/D). Their high penetration of EVs has supported a shifting from gasoline to coal as owners of hybrids shifted to recharging versus refueling at the pump. EV charging is up 69% year-on-year.

Carlyle’s Jeff Currie estimates China’s EV flexibility alone at 1-2 MMB/D of reduced demand for oil. China’s renewable energy strategy was always about security not climate. The world’s biggest coal consumer is switching to use more of what they have in abundance.

Some crude is getting out of the Persian Gulf under US military protection by sailing the narrow waterway on Oman’s side of the Strait of Hormuz. US Energy Secretary Chris Wright said last week that ship traffic had “increased very meaningfully” over the past week or two.

Shipping experts worry about a collision on a route that in places is as little as 800 meters wide. US exports of crude and refined products such as jet fuel have increased by 2-3 MMB/D, albeit made possible mostly by withdrawals from our Strategic Petroleum Reserve rather than increased production.

Europeans are driving less, another example of demand destruction.

The crude market has shown more flexibility than many expected. But many of the buffers against a shock are eroding. It still seems to us that a bet on higher oil prices offers an asymmetric risk/return. And once normal shipping resumes, there will likely be a rush to replenish inventories in case hostilities flare back up.

Jeff Currie remains bullish on crude oil. Inventory drawdown and China’s shift away from oil can’t be repeated, and the northern hemisphere is heading into seasonally strong demand (“the summer driving season”).

The equanimity of the oil market’s response will erode over time, with the US and Iran both betting that they can outlast the other. It’s no coincidence that last week’s resumption of US bombing closely followed the 4.2% CPI report. The Commander in Chief is getting frustrated. Interest rate futures reflect the possibility of a rate hike later this year. The ECB just raised rates.

Thursday’s canceled capture of Kharg Island on reported progress in talks had less of an effect on crude prices than previous similar announcements. As much as algorithms react instantly to the president’s social media updates, the persistent inability of both sides to agree must be reducing the perceived value in such trades.

While a peace agreement remains elusive, albeit apparently close once again according to presidential tweets, the positioning of US LNG exporters is steadily strengthening. Qatar was the world’s #2 exporter last year, behind the US and ahead of Australia. Since declaring force majeure in March, a handful of LNG tankers that were already loaded have left Qatar and made it through the Strait.

The most optimistic forecast sees operations resuming at Ras Laffen and reaching 80% of pre-war capacity by late August. Repairing the damage inflicted by Iranian missiles that took 20% offline is estimated to be five years away. Qatar’s plans to expand production, which drove last year’s worry of an LNG glut, are in flux. The promise of uninterrupted deliveries is no longer part of their brand.

But even this upside case depends heavily on the Strait reopening to normal traffic imminently, which it is not. It was notable on Friday that while crude prices fell on hopes of a formal truce, US LNG stocks traded up.

US LNG exporters are reportedly negotiating for better terms since hostilities began. Whether or not every pitchbook includes a map of the Persian Gulf as a helpful reminder of Qatar’s vulnerability, every potential buyer is well aware of the geography.

Last week our JV partner Catalyst Mutual Funds celebrated their 20^th anniversary. Consequently, the annual sales meeting in San Juan, Puerto Rico adopted a more festive mood. Co-founder and CEO Jerry Szilagyi gave a memorable presentation recounting the company’s early history, chronicling its ups and downs on the way to achieving today’s record size.

We’ve been partners with Catalyst since 2014, and it’s been a fulfilling journey with a great team that continues to gain importance for both sides. Jerry graciously noted that our three and five-year performance are the best across all their investments*.

My partner Henry and I were happy to step out of the office for a couple of days to help recognize this milestone.

*Past performance is no guarantee of future returns

We have two have funds that seek to profit from this environment:

Energy Mutual Fund

Energy ETF

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.