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Digging Deeper into the Charts
Next week's oil charts will be more interesting than this week's. We will be particularly interested in what happens to the Oil Price Dry Powder Chart:
We will be very interested in what happens to the number of traders on the short side. With futures, small moves are magnified by leverage; as such, a significant move, like we are seeing today, is likely to have blown through various stop-out levels for traders.
In volatile markets, stops become self-fulfilling prophecies – tight clustering near technical levels turns minor rallies into cascading short squeezes. We expect that number of shorts to continue to fall.
If geopolitics is causing moves in the markets, we have to take a look at gold:
Israel's attack on Iran could trigger a further move in the Gold, pushing the metal beyond $3,600. That being said, Gold seems expensive. Bloomberg has a fair value model (least squares regression with autoregressive covariance structure) based on the S&P 500, Gold Futures Open Interest, 10-year tips, economic policy uncertainty, Consumer Confidence, the DXY, and several credit spread measures. This model agrees with our more subjective assessment that gold is pricey. The User scenario has variables set to current spot metrics.
Finally, we wanted to flag the three-year chart of our Tanker Equity Basket, which looks interesting but also feels extremely dangerous, but who does not like losing money in shipping?:
The key question now is: Is there a fundamental thesis to keep the positive move above the 200-day SMA going? Our Tanker index is currently trading with an FCF Yield of 7.6%, at 9x earnings (TTM PE), with a 8.9% dividend yield. Therefore, it does not appear that the industry is expensive.
However, danger lurks in both the short term and the longer term, but perhaps not in the difficult-to-navigate medium term. In the short term, the Israel strikes on Iran have ratcheted up tensions in the Middle East, which will weigh on tanker demand and rates as oil prices move higher. This will likely dampen some of the optimism from recently announced OPEC+ production increases, and in the longer term, there is what appears to be a significant glut of New Build (Crude and Product) on the horizon:
Essential Real Asset Reading
The Origins of Economic Multipolarity
The global economy is shifting towards multipolarity. Since 2017, the BRICS+ alliance has surpassed the Western group in terms of GDP growth contribution, indicating a major change in global economic dynamics. This shift highlights the growing importance of emerging economies, which may outpace the Western economies in the future.
CCS to 2050
Carbon capture and storage (CCS) is gaining importance in reducing emissions, particularly in hard-to-decarbonize sectors, with North America and Europe leading its deployment. By 2050, CCS is expected to capture only 6% of CO2 emissions, indicating that its growth needs to accelerate to meet decarbonization goals.
M&A and Governments
Government involvement in business strategy now extends beyond traditional regulation into strategic economic control, prioritizing national self-sufficiency over market efficiency.
The Li Ka-shing port sale exemplifies this shift: what began as a $22.8 billion commercial divestiture to BlackRock became a geopolitical test, with China blocking the transaction and potentially inserting state-backed firms into the acquiring consortium.
Bunge's $8.2 billion Viterra acquisition is similar, and awaits Chinese approval that extends far beyond antitrust concerns into strategic commodity control.
These deals demonstrate how governments now use regulatory authority to reshape critical infrastructure and commodity sectors according to economic security objectives rather than competitive considerations, fundamentally altering risk-return calculations for investors in strategic sectors
Our recent commentary on the changing nature of markets and geopoltics: When Markets Meet Mercantallism
Oil and Geopolitical Risk
Given events, two recent studies of how oil and geopolitics interact and impact the economy. A cup of coffee is necessary to read the second report.
Geopolitical events can influence oil prices, but their effects are complex, often short-lived and tend to exert downward pressure on oil prices due to reduced economic activity, with varying impacts depending on the countries involved.
Approaching the topic from a different angle, yielding a slightly different conclusion. Major shortfalls in global oil production driven by geopolitical events only have modest effects on the oil market. Study calls into question conventional wisdom that oil price uncertainty plays a major role in driving the business cycle
Var Energi: Europe's Dividend Powerhouse
How an Infrastructure-Led Strategy and Capital Discipline, Position VAR For Outperformance Amid Commodity Volatility
Var Energi (VAR) is Norway’s third-largest oil and gas producer and one of Europe’s largest gas exporters from the Norwegian Continental Shelf (NCS). Founded in 2018 through the merger of Eni Norge and Point Resources, VAR is listed on the Oslo Stock Exchange, with Italian energy giant Eni as its largest shareholder. The company has equity stakes in approximately 50% of all producing assets on the NCS, controlling 203 licenses, including 47 producing fields. VAR is expected to produce in excess of 300,000 barrels of oil equivalent (Boe) per day in 2025 and reach a run rate of 350,000 to 400,000 barrels per day in 4Q2025. While increasing production, management has also driven down the cost of production, from about $13 per Boe in 2024 to $10 per Boe in 2025.
The material cash flow generation resulting from this efficient growth, combined with an investment-grade balance sheet, enables attractive and predictable dividend distributions. The Company paid $1.1 billion in dividends in 2024, yielding 14% on the end-of-year market capitalization for fiscal year 2024. In the first quarter of 2025, VAR distributed a dividend of $331 million, representing an annualized dividend yield of 18.2%. From 2025 onwards, the Company has raised the dividend guidance to 25–30% of CFFO after tax, from 20-30% previously. We estimate that at the current market capitalization, a double-digit dividend yield is feasible down to $50 Brent and $8 mmbtu TTF.
The company holds 1.3 billion barrels of proved and probable reserves across its portfolio, which spans all four major producing hubs on the NCS.
Recent strategic moves include the $1.2 billion acquisition of Neptune Energy’s Norwegian assets in January 2024, which added approximately 65,000 to 70,000 barrels of oil equivalent per day (boe/d) of production capacity. This works out to management paying roughly $48 per barrel of first-year production and getting all future barrels for free. Major development projects include the Balder X field, with a peak output of 78 kboe/d, and Johan Castberg, with a net peak capacity of 57 kboe/d. Both fields are expected to be in production this year. The company operates critical infrastructure, including the Goliat field, the first oil field to begin production in the Barents Sea.
We believe that Var Energie has a probability-weighted value of 64.3 NOK, representing a 108% return compared to its current price. Over a three-year time horizon, in which the most significant downside scenario fades out after two years, this price yields an internal rate of return (IRR) of 58.7%. In our peak valuation scenario, we use $85 oil and $18 TTF, yielding a value of 132 NOK. In our downside scenario, we use $55 oil and $8 TTF, yielding a value of 11 NOK.
Until next week,
