Portfolio Manager’s Monthly Update – July 2018

July 9, 2018
Dear Partners,

The oil markets and our holdings were stronger than expected in June after the big run up in May. Geopolitics and some technical issues get the credit. The U.S. government has re-imposed strict sanctions on Iran over its nuclear program and its support of terrorists groups all over the Middle East. Furthermore, the U.S. has threatened to close the U.S. market and exchange capabilities to any country that does not comply. No country can afford to disregard this threat.

On the technical side, fighting in Libya has limited their ability to export the amount of oil that is expected of them by OPEC. Venezuelan production continues to decline due to the corruption of the government and the lack of capital or foreign exchange to sustain the infrastructure. There was a fire in the tar sands of Canada that will likely take 360,000 barrels of production off the market for the month of July. Lastly, production in the Permian is beginning to outpace take-away capacity and this will soon limit the amount of oil that can reach the market from the area. New pipelines are under construction but constraints will be in place for a year or more.

Taken together, these events have reduced the amount of oil available at the same time that OPEC has reduced production – just when demand is at a seasonal high. Demand is rising in general worldwide on top of these short term current issues so oil prices are going up. It is hard to say how long this situation will last but there are few options that will help bring prices down in the near term.

The fundamentals of the fossil fuel markets for the moment are firm and the geopolitical situation, while tense, is also positive for energy prices.

Please feel free to call with any questions.

Yours Truly,

Dana McGinnis &
Mission Advisors