We are about to enter a new regime for Oil prices, one that will radically alter the landscape for oil stocks.
In this special edition of Real Conversations Hedgeye CEO Keith McCullough sat down with Ascent Oil Fund CIO Mark Gordon to discuss his deep dive on the current oil market set-up.
“I think in the last 15 years we’ve gone through two different pricing regime in Oil and we’re about to enter a third,” Gordon says. “I think we’re about to move from the Age of Abundance to a Return to Scarcity.”
This paradigm shift will have significant implications for Energy stocks, Gordon says. “I think the pricing regime is about to change. I think when that happens it’s going to be a very important moment for Oil stocks.”
Unsurprisingly, hedge fund legend George Soros’ concept of “reflexivity” factors into Gordon’s analysis. Gordon was an energy and natural resources portfolio manager at Soros Fund Management.
“Oil oscillates back and forth between scarcity and abundance,” Gordon says. “It’s reflexive in the way Soros describes it, meaning a low oil price brings a high oil price and high oil price brings a low oil price. Soros’ concept of reflexivity is that the price does not reflect reality, it changes reality.”
Gordon’s core point is that we are at a major inflection point between the shift from the “Age of Abundance” to a “Return to Scarcity” with important implications for a pricing regime change over the next six months. This regime change will be caused by:
-From the demand perspective, a truce in the trade war or a cyclical economic upswing
-From the supply perspective, the end of non-OPEC production growth
-The large projects sanctioned in the $100 world fully ramped
-The structural slowdown in tight oil
Adding to the list of reasons to be bullish on Oil prices is the “unprecedented negative sentiment” that could make the transition from oil abundance to scarcity a “violent shift,” Gordon says. “Here we have a Macro overlay reason to be bullish plus an Oil Macro overlay plus the stocks at all-time lows. This is an amazing setup.”
You don’t want to miss this Real Conversations interview.
ABOUT MARK GORDON
Gordon is an energy analyst veteran – prior to joining LSVM, he was a Senior Portfolio Manager at AlphaGen Capital, where he managed the Alphagen Energy Funds. He was also a Senior Analyst at Paulson & Co responsible for the energy sector, and a Portfolio Manager at Soros Fund Management where he ran an energy and natural resources fund. He spent eight years at Goldman Sachs Asset Management ending as a Portfolio Manager and Managing Director. He oversaw energy positions across all growth funds and was also a generalist PM on the Small and Mid-Cap fund. He began his career as an investment banking analyst in M&A at Lehman Brothers.
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