-
George Noble says the market is too complacent about what’s going on in oil.
-
In his view, physical oil is pricing the war correctly, while oil futures are not.
-
He views energy stocks as the most strategic trade to guard against Iran-driven losses.
Oil futures are trading around $100 a barrel on Wednesday as investors assess the fragile state of the US-Iran ceasefire, but Wall Street veteran George Noble thinks the market is still not bearish enough about what’s happening in crude.
Noble, the former director of the Fidelity Overseas Fund and the founder of multiple hedge funds, said that he sees the Iran war exposing a dangerous disconnect between physical and “paper” oil.
“The physical market is pricing a war. The paper market is pricing a peace deal,” he wrote on X. “One of them is wrong.”
The spot price of Brent crude surged above $140 a barrel earlier this month, the highest level since the 2008 crisis. Meanwhile, Brent futures peaked just below $120 in the beginning of March shortly after the war broke out.
Noble thinks the physical oil market is priced correctly because it reflects supply constraints in real time. Paper oil, referring to financial instruments such as futures, is driven by forecasts, beliefs, and narratives that can turn out to be incorrect.
Noble sees the risk in physical oil markets is anything but hypothetical. With the state of shipping through the Strait of Hormuz still uncertain, oil flows remain halted, and energy infrastructure in the region is still damaged.
“That’s two completely different wars being fought at the same time – one the global supply chain has already solved, and one it cannot,” he said. “And paper oil prices are trading like this distinction doesn’t exist.”
The Strait of Hormuz closure is impacting industries beyond oil, including fertilizer, with wide-ranging implications for agriculture, and helium, which could have knock-on effects in areas such as medicine and AI.
While some commodities can be moved in other ways, Noble noted that these solutions don’t extend to physical oil, and there is no easy fix for the extreme disruption to global energy flows.
With this disconnect between the two sides of the oil market continuing to intensify and no clear end to the war in sight, Noble maintains that investors should be prioritizing the energy trade, a playbook that other finance pros have recommended as a means of guarding against losses stemming from the economic fallout.
“Energy stocks remain the most asymmetric trade in this market,” Noble aded. “When paper catches up to physical (and 45 years of experience tells me it always does) the repricing will be violent”.”
Read the original article on Business Insider
