Discover more from Kaoboy Musings

KAOBOY MUSINGS and its associated podcast KAOS THEORY focus on the intersection of Financial Markets, Macroeconomics and Geopolitics. I've spent 30+ years as a trader/hedge fund manager and now manage money for my family office across many asset classes.

Over 10,000 subscribers

* Oil/USD Wrecking Ball Substack Directory *

Michael Kao

Oct 21, 2023

2/7/21 - Re: Oil-Different Dynamics Under Biden.

Re: Oil-Different Dynamics Under Biden.

Michael Kao

February 7, 2021

Biden has clearly signaled a pivot back to Iran concomitant with abandonment of Saudi Arabia: 1) halting arms sales, 2) halting support of against Shia-backed Houthis in Yemen, 3) recalling the Nimitz from the ME. Although I’m fond of saying that the cure to high prices is high prices, between the steep backwardation in oil and Biden’s various green ener…

Read full story

2/12/21 - Re: Oil-The Significance of Backwardation.

Re: Oil-The Significance of Backwardation.

Michael Kao

February 12, 2021

Re: Oil-The Significance of Backwardation.

With the curve backwardated $9 to ’23, history predicts that more often than not, much higher spot prices will follow. Spent the day looking at historical contango-to-backwardation flips, and in 7 out of 11 such scenarios since 1988, spot prices were significantly higher in the following year.

Read full story

2/23/21 - Re: Oil-Best Inflation Hedge?

Re: Oil-Best Inflation Hedge?

Michael Kao

February 23, 2021

From JP Morgan: “Energy outperforms other sectors when US headline CPI is above 2% and rising. However, on a volatility-adjusted basis, returns from energy are largely comparable to the broader BCOM.”Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Read full story

3/5/21 - Re: Oil-Notes From Capital One Oil Call.

Re: Oil-Notes From Capital One Oil Call.

Michael Kao

March 6, 2021

Re: Oil-Notes From Capital One Oil Call.

OPEC+ meeting “was a shock.” Especially notable: SA’s decision to roll over its voluntary cuts. With 6 months of consecutive supply draws, YE’21 global inventories will be below the OPEC+ "safety stock" target of 2.75B bbls. This has led to serious price spikes in the past.

Read full story

3/8/21 - Re: Oil/Macro-This Butterfly Has Big Wings.

Re: Oil/Macro-This Butterfly Has Big Wings.

Michael Kao

March 8, 2021

Re: Oil/Macro-This Butterfly Has Big Wings.

“Capex commodities” include lumber and industrial metals that are required for building things. “Opex commodities” like food and especially energy/oil (the biggest cap-weighted commodity by far) are consumed on an ongoing basis just for human survival.

Read full story

4/12/21 - Re: Oil-Will Shale Ruin The Party Again?

Re: Oil-Will Shale Ruin The Party Again?

Michael Kao

April 13, 2021

Re: Oil-Will Shale Ruin The Party Again?

At the risk of saying “this time is different”, I’m going to say that this time is indeed a bit different from the past from a number of angles. First, US public E&P’s are much more focused on capital discipline and shareholder return than years before. I’ve said often that one of the biggest risks in investing in the public E&P space is capital realloc…

Read full story

4/21/21 - Re: Oil-When Will EV Adoption Cause Peak Oil Demand?

Re: Oil-When Will EV Adoption Cause Peak Oil Demand?

Michael Kao

April 22, 2021

Re: Oil-When Will EV Adoption Cause Peak Oil Demand?

First, the short-term picture for oil demand. Pre-COVID, we were at ~100 mmbpd. Currently, we're at 95 mm bpd. YE21 we will be at ~98 mm bpd; YE22 we will be at 102 mm bpd. Here are some predictions for global EV penetration, courtesy of Capital One: 5.8% for '23, 11% for '25, 26% for '30, 57% for '40. EV unlikely to materially impact gasoline demand unt…

Read full story

6/1/21 - Re: Oil-ESG “La La Land.”

Re: Oil-ESG “La La Land.”

Michael Kao

June 1, 2021

Michael Cembalist from JPM recently published his “2021 Annual Energy Paper.” A summary follows. First, let me preface this thread by saying that I’ve never seen such a wholesale mobilization of economic/political capital towards a goal – decarbonization – that to me is more about political zealotry than science.

Read full story

7/23/21 - Re: Oil-Update on OPEC+ Agreement/Delta Worries.

Re: Oil-Update on OPEC+ Agreement/Delta Worries.

Michael Kao

July 23, 2021

Re: Oil-Update on OPEC+ Agreement/Delta Worries.

To give some context to this update, this was what I presented on @realvision 3 months ago. https://www.realvision.com/shows/the-expert-view/videos/is-crude-oil-the-best-inflation-hedge-and-other-oil-questions-9vpD?utm_source=twitter&utm_medium=social&utm_campaign=2021422_EXPVIEW_MR_TW_W1_LINK&tab=details

Read full story

8/19/21 - Re: Oil-Is China Painting The Tape?

Re: Oil-Is China Painting The Tape?

Michael Kao

August 19, 2021

She believes that current “fair value” for Brent is $74 (vs. close of $66.56 today) and that the current prices implies a demand hit of 4 mmbpd from July. Interestingly, high-frequency data for the 1st 2 weeks of August indicate global demand holding STABLE at 98.6 mmbpd MoM — even “adjusting for losses for China and RoA.”

Read full story

9/27/21 - Re: Oil-GS Call for $90 Brent by YE’21.

Re: Oil-GS Call for $90 Brent by YE’21.

Michael Kao

September 27, 2021

“This dynamic has led to a historic 4.5 mb/d deficit, which should lead inventories to fall to their lowest level since 2013 by year-end...” Two charts tell the story. Here’s supply:Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Read full story

10/7/21 - Re: Oil Export Ban-Could the Admin be THAT stupid?

Re: Oil Export Ban-Could the Admin be THAT stupid?

Michael Kao

October 7, 2021

Re: Oil Export Ban-Could the Admin be THAT stupid?

Yesterday, apparently, it became an official talking point. I believe that this talk + the SPR talk were the 2 main culprits behind the recent oil correction, aside from the obvious point that the market had been on a crazy tear and that nothing goes up forever in a straight line.

Read full story

10/8/21 - Re: Oil-JP Morgan Call Highlights.

Re: Oil-JP Morgan Call Highlights.

Michael Kao

October 8, 2021

JPM thinks COVID is about to peter out based upon the 1918-19 analog of 4 waves lasting 20 months. Mobility trends are corroborating this. Oil is still cheap relative to other energy commodities. Coal prices are implying $150-$200/bbl for oil.Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a f…

Read full story

10/14/21 - Re: Oil-Convo with Javier Blas, Bloomberg’s Chief Energy Correspondent.

Re: Oil-Convo with Javier Blas, Bloomberg’s Chief Energy Correspondent.

Michael Kao

October 14, 2021

Re: Oil-Convo with Javier Blas, Bloomberg’s Chief Energy Correspondent.

Key question on my mind has been the topic of OPEC SPARE CAPACITY. I mentioned that Cap One’s out-of-consensus view that GCC countries (especially KSA) were heavily investing in spare seemed at odds with this tidbit that Javier reported on: Having known AbS for 20 years, Javier thinks that KSA oil policy under AbS will err on the cautious side. He thinks…

Read full story

10/21/21 - Re: Oil-Latest Macro Thoughts From Cap One.

Re: Oil-Latest Macro Thoughts From Cap One.

Michael Kao

October 21, 2021

Re: Oil-Latest Macro Thoughts From Cap One.

Near-term YE Demand Forecasts: 2022-101.7 (vs. JPM 101.3) 2023-102.9 (would have hit in 2022 without COVID)Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. Lakshmi points out she is on high end of street and doesn’t see much upside to her numbers.

Read full story

11/19/21 - Re: Oil-The Admin’s “Kobayashi Maru.”

Re: Oil-The Admin’s “Kobayashi Maru.”

Michael Kao

November 20, 2021

Despite pursuing a myriad of policy missteps that have simultaneously alienated OPEC+ and disincentivized investment in the domestic O&G space, the Admin has embarked on an unwinnable rhetorical war against rising energy prices. I have been speaking with several industry experts over the last several days and have compiled a list of FOUR possible policy …

Read full story

12/16/21 - Re: Oil and the USD Wrecking Ball.

Re: Oil and the USD Wrecking Ball.

Michael Kao

December 17, 2021

I am going to pull some of these thoughts together here. Since the current decade is already looking like the 70’s in many ways (ignominious defeat on the global stage, energy crisis, inflation, new ABBA album, etc.), let’s go back to something else that happened in 1974: the establishment of the PETRODOLLAR system.

Read full story

1/30/22 - Re: BTC/Oil/USD/MSTR-Tying It All Together & The “Ummwut” Umwelt.

Re: BTC/Oil/USD/MSTR-Tying It All Together & The “Ummwut” Umwelt.

Michael Kao

January 31, 2022

Re: BTC/Oil/USD/MSTR-Tying It All Together & The “Ummwut” Umwelt.

Last year I got captivated by octopuses (these things happen) and read several books on cephalopod consciousness, and an interesting word caught my eye: “Umwelt.” “Umwelt”: “the world as it is experienced by a particular organism.” For instance, it is hard for us vertebrates to envisage the umwelt of an octopus that has invertebrate, distributed intellig…

Read full story

3/13/22 - Re: USD Wrecking Ball World Tour & The CNY Facade.

Re: USD Wrecking Ball World Tour & The CNY Facade.

Michael Kao

March 14, 2022

Re: USD Wrecking Ball World Tour & The CNY Facade.

I’ve written about the determinants of RELATIVE value for currencies. While Debt/GDP is one factor, a myriad of other factors go into the determinants of “safety and soundness.” This thread talks about geographical/geopolitical determinants of value:

Read full story

4/27/22 - Re: Oil-Trying To Cut Through The Noise.

Re: Oil-Trying To Cut Through The Noise.

Michael Kao

April 27, 2022

Re: Oil-Trying To Cut Through The Noise.

Cap One provided some useful data points today in a client call, which I will summarize below. Obviously, A LOT has happened since my last update 6 months ago, but I still think signal:noise is very low right now. Rather than give the illusion of false precision, I'll cover broad strokes which I hope to be generally accurate.

Read full story

7/5/22 - Re: Geopolitics/Oil-Conversation With Velina Tchakarova.

Re: Geopolitics/Oil-Conversation With Velina Tchakarova.

Michael Kao

July 6, 2022

Re: Geopolitics/Oil-Conversation With Velina Tchakarova.

Russia will NOT stop its current incursion into Ukraine until it has FULL CONTROL of the Donbas region. Then, and only then, will Russia potentially proclaim a unilateral ceasefire to "give itself a break." Importantly, this will most likely happen on Russia’s terms and NOT because of any demands from the West. She is not seeing any near-term paths to de…

Read full story

9/4/22 - Re: Oil-Forward Curves & Holy Grails (or Lack Thereof).

Re: Oil-Forward Curves & Holy Grails (or Lack Thereof).

Michael Kao

September 5, 2022

Re: Oil-Forward Curves & Holy Grails (or Lack Thereof).

First, let me dispel the notion that there is an easy, tried-and-true leading indicator/model for predicting price movements of Oil, or for that matter ANYTHING. Ridiculous notions of “stock-to-flow/halving models” for $BTC come to mind. Second, let me dispel once and for all the notion that CURRENT FORWARD prices in the curve reliably predict FUTURE SPO…

Read full story

12/18/22 - Re: Oil-High Level Macro Thoughts For My LPs.

Re: Oil-High Level Macro Thoughts For My LPs.

Michael Kao

December 19, 2022

Re: Oil-High Level Macro Thoughts For My LPs.

“The macro outlook for oil is complicated going into 2023, characterized by a tug-of-war between forces of supply curtailment (EU embargoes/price caps on Russian oil and products + OPEC+ quota cuts) and forces of demand destruction (global recessionary headwinds clouded by China’s troubled COVID reopening policies).

Read full story

12/22/22 - Re: Oil-The Great China Re-Opening (Or NOT).

Re: Oil-The Great China Re-Opening (Or NOT).

Michael Kao

December 22, 2022

Re: Oil-The Great China Re-Opening (Or NOT).

Yesterday, Lakshmi from Cap One put out her last note of the year and focused on PRODUCT demand. Remember that refiners consume Oil, and consumers consume products. Some sobering charts follow:Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Read full story

2/25/23 - West Point Paper: “US Dollar Primacy in an Era of Economic Warfare”

West Point Paper -- Part 1/4

Michael Kao

Feb 25

Introduction US national security is now firmly focused on Great Power Competition (GPC) and how to reorient policies to face the country’s challengers. Competition with China in particular is now front- of-mind, but the list of additional challengers will likely grow. The US-led Rules-Based Order (RBO) is changing in an increasingly multipolar world. Ne…

Read full story

3/26/23 - Re: Inflation/USD/USTs – “Risk-Free” Riskiness & Austrian Pipe Dreams.

Re: Inflation/USD/USTs – “Risk-Free” Riskiness & Austrian Pipe Dreams.

Michael Kao

Mar 26

Re: Inflation/USD/USTs – “Risk-Free” Riskiness & Austrian Pipe Dreams.

In recent weeks, I have read many incorrect and misleading takes on Twitter by folks who are decrying recent interest rate volatility as some kind of “false advertising” of the term “Risk-Free” when it comes to US Treasury securities (USTs). These takes go something like this:

Read full story

4/2/23 - Re: Oil/Inflation/USD-Clash of the Titans.

Re: Oil/Inflation/USD-Clash of the Titans.

Michael Kao

Apr 3

Re: Oil/Inflation/USD-Clash of the Titans.

The Greek mythology nerd in me can’t help thinking about this old 80’s flick given today’s surprise OPEC+ cut:

Read full story

4/7/23 - Re: Geopolitics/Oil/USD - BRICS-a-Brac?

Re: Geopolitics/Oil/USD - BRICS-a-Brac?

Michael Kao

Apr 7

Dictionary.com defines “Bric-a-Brac” as “miscellaneous objects and ornaments of little value.” Despite all the recent hyperbole about the BRICS (Brazil, Russia, India, China, South Africa) nations forming a challenger to the USD, I believe it will amount closer to "Bric-a-Brac” than GRC contender.

Read full story

4/15/23 - Re: Oil/Inflation-Supply/Demand Curves & OPEC+'s Fantasyland.

Re: Oil/Inflation-Supply/Demand Curves & OPEC+'s Fantasyland.

Michael Kao

Apr 15

Re: Oil/Inflation-Supply/Demand Curves & OPEC+'s Fantasyland.

Two weeks ago, I wrote about OPEC+’s decision to jump into the Geopolitical Mosh Pit with its surprise cut of 1.65 mmbpd of Oil production: Unfortunately for all of us and ultimately for OPEC+, I believe the Fed will ultimately win this Clash of the Titans.

Read full story

5/6/23 - Re: Oil/Inflation/Geopolitics - Squid Game Tug-of-War.

Re: Oil/Inflation/Geopolitics - Squid Game Tug-of-War.

Michael Kao

May 6

Re: Oil/Inflation/Geopolitics - Squid Game Tug-of-War.

The Clash of the Titans between the Fed & OPEC+ could cause a Toxic Tug-of-War between Inflation and Deflation with a "Squid Game" outcome. I will build my case with several key observations.Kaoboy Musings is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Read full story

5/24/23 - Re: Oil-Deep Dive & The Supply/Demand Singularity Revisited.

Re: Oil-Deep Dive & The Supply/Demand Singularity Revisited.

Michael Kao

May 25

Re: Oil-Deep Dive & The Supply/Demand Singularity Revisited.

For those of you who have followed me for a while, you know that I’m neither Perma-Bull nor Perma-Bear. If there’s anything I’ve learned in my years investing in the Oil Patch it’s that remaining religiously wed to an investment thesis even when the facts are changing can be extremely hazardous to your financial health

Read full story

6/7/23 - Re: Oil/Investing - Lessons From The Oil Patch / Will Atlas Shrug?

Re: Oil/Investing - Lessons From The Oil Patch / Will Atlas Shrug?

Michael Kao

Jun 8

Re: Oil/Investing - Lessons From The Oil Patch / Will Atlas Shrug?

Investing in cyclical industries, especially Commodity Cyclicals, can be a very tricky business. You can get the Micro-fundamentals right but get killed by Macroeconomic Black Swans. Conversely, you can get the Macro direction right but still get blindsided by Micro issues at the Company/Regional level and/or unexpected Geopolitical developments.

Read full story

7/22/23 - Re: USD/China - The Donkey Kong Dollar Peg.

Re: USD/China - The Donkey Kong Dollar Peg.

Michael Kao

Jul 22

Re: USD/China - The Donkey Kong Dollar Peg.

Like many kids who grew up in the 70’s and 80’s, I was an arcade game junkie. One of the games I invested countless quarters in was the endearing Donkey Kong, in which a lovestruck Mario braves numerous challenges to rescue the Princess from Donkey Kong, who has taken her captive.

Read full story

9/6/23 - Re: Inflation/USD - The Four Horsemen of US Resilience Will Make the Fed an Uneven "Distributor of Pain."

Re: Inflation/USD - The Four Horsemen of US Resilience Will Make the Fed an Uneven "Distributor of Pain."

Michael Kao

Sep 6

Re: Inflation/USD - The Four Horsemen of US Resilience Will Make the Fed an Uneven "Distributor of Pain."

I recently wrote a piece in which I compared the Fed to Ivan Drago, who famously said “I must break you” to Rocky in Rocky IV. As with most analogies, this one is imperfect, because in my Bizarro version of this tale, the Ivan Drago Fed will be the last man standing in its Inflation Fight.

Read full story

10/21/23 - Re: Inflation/Oil/Gold/Yield Curves - Revisiting Bear Steepening, Recency Bias & That 70's Show.

Re: Inflation/Oil/Gold/Yield Curves - Revisiting Bear Steepening, Recency Bias & That 70's Show.

Michael Kao

Oct 21

Re: Inflation/Oil/Gold/Yield Curves - Revisiting Bear Steepening, Recency Bias & That 70's Show.

Revisiting Bear Steepening In June, 2022, I wrote a thread that proposed an “out-of-the-box” solution to the Fed’s dilemma of how to cure Inflation without potentially also creating a Credit Crisis. In short, I said that the Fed and Treasury needed to work together to

Read full story