November 24, 2021
The same positioning indicators have Energy as the most crowded sector short, with long positioning down ~90% over the last decade. The playbook for sustainably higher WTI crude prices includes increased demand, depleted inventories, OPEC production misses (missed the past 4 mos), ESG constrained non-OPEC capex and inflation hedging. If portfolio managers just decide to shift Energy weights back to pre-financial crisis levels, the current size of financial assets involved in that rotation would cause material upside in Energy equities. Assuming $65 average WTI, and holding other inputs constant, there are several US E&P companies that would generate enough free cash to buyback their entire current market cap.