Jeff Currie spent the last eight months telling investors to jump on the oil trade. On Monday, he told them to take profits.
“Time to take prompt oil profits,” the former head of commodities research at Goldman Sachs, now an advisor to Carlyle, said in a post on X.
The call landed as oil tumbled. West Texas Intermediate crude fell 7.6% to $96.20 a barrel by mid-afternoon in New York, while Brent dropped 7.6% to $104.77, after Iran floated a two-day plan to reopen the Strait of Hormuz.
Currie said he has cut most of his exposure to near-term crude and fuel contracts ahead of Tuesday’s midterm elections.
He is not turning bearish on energy, however. He is splitting it in two.
A Bull Who Rode The Whole War
In May, Currie argued that commodities were the revenge of the old economy, noting the Quantix Commodity Index had returned 217% since he called a supercycle in October 2020.
As recently as Oct. 27, he told investors to look past the spot price. Calendar 2027 Brent was holding near $97 a barrel, he said, meaning the market was pricing in close to $100 oil for an entire year.
“This is looking increasingly structural, not transient,” Currie said at the time, as energy stocks he calls the “Munificent 7” hit record highs.
That view has not changed. What has changed is his read on the front of the curve.
The War Trade And The Regime Trade
The war trade pays on the barrel price. It covers prompt crude, refined products and the windfall on barrels already in the ground.
The regime trade pays on the cost of replacing that barrel. It covers rigs, oilfield services, local production, pipelines that bypass chokepoints, firm power and storage.
“Prompt oil prices a war. Long-dated oil prices a regime. Trade the first, own the second,” Currie said.
He exited the first because of what he calls managed instability. Escalation would be too damaging to food and fuel supply chains for either side to pursue, while a lasting deal remains out of reach.
The result is “Schrödinger’s Strait,” a waterway that is neither fully open nor fully closed. That caps the price of today’s barrel, Currie argued, but does nothing to lower the next one.
The War Trade Has Already Paid
The United States Oil Fund LP (NYSE:USO) is up 130% this year.
Refiners have done even better. Marathon Petroleum Corp. (NYSE:MPC) is up 166% and Valero Energy Corp. (NYSE:VLO) has gained 135%.
Oil services, the core of the regime trade, have lagged. The VanEck Oil Services ETF (NYSE:OIH) is up 37%.
On Monday, the market did not draw Currie’s distinction. Oil services fell harder than the majors, with the services ETF down 4.9% against a 3.6% drop for the State Street Energy Select Sector SPDR ETF (NYSE:XLE).
| Company | Monday | YTD |
|---|---|---|
| United States Oil Fund LP (NYSE:USO) | -6.8% | +130.0% |
| Marathon Petroleum Corp. (NYSE:MPC) | -2.5% | +166.3% |
| Valero Energy Corp. (NYSE:VLO) | -4.0% | +135.1% |
| Energy Select Sector SPDR (NYSE:XLE) | -3.6% | +51.0% |
| SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP) | -4.6% | +53.9% |
| VanEck Oil Services ETF (NYSE:OIH) | -4.9% | +36.9% |
| SLB Ltd. (NYSE:SLB) | -2.2% | +36.8% |
| Halliburton Co. (NYSE:HAL) | -3.7% | +23.0% |
Why Currie Says The Builders Get Paid Next
Oil is near $100, yet drilling has barely moved, he said. Upstream investment remains below its 2015 peak and refining investment sits at a decade low, according to Currie.
Governments and companies are rebuilding their energy systems on the assumption that Hormuz could close again. Currie pointed to Gulf producers loading crude outside the strait, Italy restarting nuclear power, the Netherlands reopening North Sea gas and China holding 1.4 billion barrels in storage.
“None of it dissipates when the ships come back,” he said.
“A supercycle is a capex cycle. The owners of the molecule get paid first. The builders get paid next,” he added.
If prompt prices fall from here, Currie said he will not rush to buy them back.
Image: Shutterstock
