Another break in my Macro View multi-part series.
Well, we got what we wanted out of OPEC. Production cuts to 32.5 M B/D but they were also able to strap on some cuts out of non-OPEC nations like Russia (330 K B/D). and even more importantly, they list the exact cuts each OPEC member will adhere to. All this takes effect January 2017. So this was about as good as we were going to get.
The Affect on the Markets on the Day
WTI is +8.6%, Western Cdn Select +13, Various Cdn junior and intermediate energy producer stocks and some OFS (oilfield services companies) +4-15%, the same company's high yield bonds +1-3%, Gold -1.3%, Nat Gas +1%.
We also think OPEC would rather remove the downside, and the upside, volatility in the oil markets and just have the price climb very slowly over time. We think this is sustainable over the medium term. Heck, part of our view was that if OPEC didn't get a deal done today...they might as well dissolve their cartel.
As I said yesterday, we have the bulk of our energy exposure in very specific, value-driven and event-driven high yield energy bonds but we also own some specific energy stocks where we feel our research has driven us to the equity component of the capital structure (remember, our Tactical Model can go anywhere and do anything...within the scope of our Investment Policy Statement...relax, we don't use derivatives...just good old fashioned stocks, bonds, prefs and converts).
Nice way to end what was a very volatile month.