Sui Generis Lays Out Bearish Oil Price Thesis

Due to those factors, Sui Generis considers:

“As it relates to oil, start discounting anyone who tells you their long asset life is worth a premium. If the demand side of this conversation is even half right, having a 50 year asset is going to become a liability.”

Given that Exxon, Chevron, BP, Petrobras, and Total each have major projects listed as assets on their books, Sui Generis’ stance suggests that the fund is rather cautious on investing in all five names. In terms of elite fund ownership, the smart money liked Exxon Mobil Corporation (NYSE:XOM) the most, as 60 funds from our database held its shares at the end of the second quarter. Given that Chevron Corporation (NYSE:CVX) is the second-largest market cap stock on our list, it’s not surprising that it ranked as the second most popular with 47 investors reporting stakes as of the end of June.

In terms of international companies, BP plc (ADR) (NYSE:BP) came in third as 40 funds were bullish on the stock at the end of the second quarter, up 6 funds from the previous quarter. Meanwhile, Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) and Total SA (ADR) (NYSE:TOT) rounded out the top five, as 23 and 16 funds tracked by Insider Monkey were long the two integrated giants on June 30, respectively.

While the fund is rather cautious on oil in the long run, Sui Generis does acknowledge that Saudi Arabia and OPEC wants higher prices:

“OPEC clearly wants a $50 floor and will do what they can to maintain it (or at least Saudi Arabia will). Saudi Minister HE Al-Falih seemed very open and serious about wanting higher prices, though since the conclusion of that conference OPEC’s 2nd largest producer (Iraq) has publicly stated that they do not plan to cap production.”

If crude does find a floor at $50 and the price of the commodity trends higher, the fund is more bullish on oilfield consumables (such as fracking sand, frack fluid companies) and specifically those that service competitive North American unconventional basins. Of course the preceding info is just one side of the coin, and there is always the other side such as whether all of Sui Generis’ beliefs have already been priced in.

Disclosure: None