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Queen Mary MSc Investment Fund Commodities – Energy
2015 Investment Recommendation
Presenters: Dillen Kanjee & Brad Kellman
SNRG – ETFS Short Energy ETF
Investment Recommenda.on
The energy commodi6es unit of QUMMIF recommends the fund enter a short posi6on in the energy commodi6es market. Given the constraints of the fund as a long only investor, we recommend this short posi6on be established via the use of a Short Energy ETF • Ticker: SNRG • ISIN Code: JE00B24DKV97 The ETF inversely tracks the Bloomberg/Dow Jones Energy Sub-‐Index at 1x
We believe the trade should be executed immediately to take advantage in the recent rally in crude prices. We believe this is a “dead cat bounce” before prices take a leg lower Posi6on Size: It is recommended that £500 -‐ £1000 of Investment Capital is allocated to this posi6on. (Approximately 1.25 – 2.5% of total fund assets )
Natural Gas 26.4%
WTI Crude Oil 24.8%
Brent Crude 23.6%
Unleaded Gasoline 12.8%
Hea6ng Oil 12.3%
A Look at Recent History
Fundamental Analysis What has changed in the energy markets between the lacer half of 2014 and now? US Rig count has declined, but what about produc6on and crude Inventories?
Fundamental Analysis US rig count has plummeted from approximately 1,600 in September 2014 to 922 ac6ve oil rigs as at March 6th, 2015. Yet the US Energy Informa6on Administra6on (EIA) is forecas6ng increased oil produc6on of 8.1% in 2015 to approximately 9.3 million bbl/d.
Source: US Department of Energy -‐ hcp://energy.gov/maps/us-‐crude-‐oil-‐produc6on-‐surpasses-‐net-‐imports
Fundamental Analysis
US Oil Inventory levels are currently at 80 year highs at 444.4 million barrels and 1,135 million barrels if you include the US strategic Petroleum Reserve (SPR) Despite increased crude supply US refineries are opera6ng at only 86.6% of capacity, Why? • Strike ac6on by US Steel Workers Union • Planned refinery outages over the next 2 months averaging 18% of US refinery capacity • US refineries are configured to refine much heavier types of crude than what is being
produced by fracking.
Source: US Energy Informa6on Administra6on (EIA) – US Weekly Petroleum Balance Sheet
NYMEX WTI Crude Open Interest
ICE Brent Crude Open Interest
The FlaSening Crude Curve
What About OPEC?
Risk Exposure Investment posi6on would be suscep6ble to geo-‐poli6cal tensions and sudden OPEC policy reversals SNRG offers a unique hedge for the wider QUMMIF porjolio given its nega6ve correla6on (-‐0.406) with the wider market The SNRG exposure would generally outperform during vola6le/Risk-‐Off market scenario
Performance Since March 9th, 2015
The End
Thank You