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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"The oil market has severely mispriced a 10-11M bpd supply disruption, with crude at $80 while products signal $120-140. Iran controls the Strait of Hormuz as an economic weapon and inventories decline unsustainably."
Open Square Capital argues the oil market has fundamentally mispriced the ongoing US-Iran conflict and resulting supply disruption. Despite the Strait of Hormuz operating at only 50% capacity and global production down 10-11M bpd, crude prices have round-tripped to $80/barrel while product prices signal $120-140/barrel. The manager attributes this dislocation to administration jawboning, extreme bearish positioning, and China's strategic reduction of imports by 7M bpd. However, global inventories have drawn 420M barrels and continue declining at an unsustainable pace. The manager expects Iran to maintain control of the strait as its economic weapon, forcing eventual US concessions on sanctions and uranium enrichment. As physical tightness becomes undeniable and China returns to normal import levels, crude prices should converge violently toward product prices. The fund maintains concentrated positions in Occidental Petroleum, valued at $80/share versus $50 current price based on normalized cash flows, and Valaris ahead of its Transocean merger. The manager views current energy equity valuations as disconnected from underlying fundamentals given the geopolitical and supply backdrop.
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