Sri Jegarajah, Kevin Kerr, Jim Roemer On Oil, Commodities And Weather

About once a week, Sri Jegarajah sends a survey to a list of market observers located around the world. We have the good fortune to be among the group. The group shares its views internally. It seems we find each others comments helpful. At least, I do.

Sri is based in Singapore and can be seen anchoring or reporting on the set of CNBC Asia. We have been interviewed by him and have participated in conferences with him. He is sharp. Sri usually writes up the results of his energy surveys and publishes them via the CNBC website and other media.

Our most recent response to the energy survey was bullish. We argued that the geopolitical risk in the “oil patch” is rising. We disagree with the market’s celebration based on passive regime change in Iran and calm transition in Venezuela. We see turmoil spreading in Nigeria. The activity on the Turkish-Syrian border is not about to cease.

Sanguine outcomes in the energy sector? Nope. In our view the world just doesn’t work that way. Despots do not give up easily.

What happens if we add a weather shock to the geopolitical outcomes? Then our case gets even more bullish.

Kevin Kerr added this view to the survey responses: “We are using this softness to add several different positions in the products and natural gas. We do not expect these low prices to continue long, and we also anticipate a very cold and challenging winter in the Midwest and northeast US, both areas of key HO and NG usage.” Kevin is one of the survey’s thoughtful respondents. He constantly migrates between his Palm Beach office and his Tallinn, Estonia location.

We took the weather question to Jim Roemer, one of our Sarasota neighbors, who is a meteorologist and adviser to some hedge funds. Jim and I exchange world views occasionally over a glass of wine and a meal at Salute, one of Sarasota’s lovely “al fresco” bistros.

Cumberland continues to overweight the energy sector. We use a number of ETFs so that we can construct portfolio positions that include oil and natural gas, exploration, distribution, and refining. We are strategically bullish on the energy sector. We believe that the longer term price of oil is headed higher and that the trough in natural gas pricing is behind us. We think the world is a dangerous place when it comes to geopolitical risk.

We do not know about a cold winter, but we respect the views we are seeing. Hmmm, I wonder if a freeze will reach south to Sarasota. Maybe my winter meal with Jim will require us to sit indoors and turn up the heat?

By David R. Kotok