Portfolio Manager’s Monthly Update – May 2018

May 11, 2018

Dear Partners,

The oil markets and the energy business came to life over the last few weeks spurred by steadily falling inventories, continued production restrictions by key OPEC members, and rising tensions over the Iran deal. Most energy indices performed well in April and May is off to a good start.

At the moment, oil prices are around $70 a barrel. As I have said before, we are not in the business of predicting oil prices, but we have had a bullish bias for at least a year. Our optimism is buoyed by many factors including what we see in the global markets as well as the flourishing Permian Basin where we have taken great interest. We remain convinced that the Permian Basin is the place to be if you want to make money in energy.

We all recall the period from 2014-2016, when oil prices dropped dramatically, breaking the 20+ year reign of market manipulation by OPEC. The recovery we are seeing is due to the ingenuity of U.S. free market forces and the expertise of the U.S. energy industry. We have developed the formidable ability to extract massive amounts of oil and gas from shale formations and bring new supplies to market at a profit.

Presently, take-away capacity constraints in the Permian are putting pressure on WTI, which is beginning to sell at a discount to Cushing prices. We believe that as West Texas pipelines come on stream later this year, Permian volumes will begin to put pressure on worldwide prices – and WTI discounts should shrink again.

As for the sanctions on Iran affecting the world energy markets, we think the effect will be minimal except for Iran where they will certainly sting.

We hope all is well with you and encourage you to call us with any questions.

Sincerely,

Dana McGinnis &
Mission Advisors