Summary

Mark Latham focused his conference call on the ongoing commodities bull market, the electricity crisis beginning in Q2 as well as the conflict in Russia and its impact on oil.

Looking at renewables within the electricity crisis, the increase in renewables has led to further grid instability as there is no storage available. Therefore, all that is being done is adding worthless units of power to the grid that can’t be stored. Grid instability has driven natural gas consumption, particularly in the EU where electricity and natural gas prices have quintupled. Mark disagrees with the Western idea that ‘this is Russia’s fault’, rather the fault lies with the lack of supply. Policy response and methane regulation have moved the commodity market from shortage to surplus.

Within the demographics of the petroleum industry, it is an ageing interest, and with the supply issues and upcycle only just beginning in Mark’s view, there will be a lack of human capacity to radically alter the picture.

The industry activity index for the Dallas Fed show business confidence has picked up immensely and gas drilling is proving to be 100% profitable; however, industry sentiment has only deteriorated, due to the political push to criminalise the industry. Activities have gone down whilst oil and gas prices have gone up, even prior to the war in Ukraine. Following the outbreak of the war, the market has moved from tight to shortage and prices will continue to grow, with Mark forecasting a move of oil to 300+.

In China, there is a particular energy crisis here involving coal and pollution; with 55% of total economic energy units coming from coal. This has led to a property crisis across Chinese cities, with prices in Hegang falling 90%. The CCP have begun rationing coal to drop the price, however those within heavy industries, like aluminium, have to import coal at the market price triggering consequences in the commodity market, which is energy intensive. Going forward, the only way to ration demand is with price and Mark is hugely overweight on Energy and Texas E&P’s and ExxonMobil.

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