TLT - Sell Petrobras And Buy DHT For A Rising Inventory And Oil Restocking Environment

• Large oil trading companies and refiners who are buyers of oil are not restocking because the futures curve is signaling prices will be lower in the future (negative carry).
• There is an inability to hedge this negative carry because longer-dated oil futures prices are lower than near-term or spot prices.
• This means buyers of oil have essentially no choice but to draw down inventories and delay restocking, which has been a draw on the tanker market.
• I think this backwardation of the curve (downward sloping) will flip to contango (upward sloping) for one of two reasons. Regardless of the reason, tanker stocks stand to benefit.
• Either the discounted back-end rises at a faster pace than the expensive front-end or the front-end is more oversupplied than people believe, inventories start to rise and near-term/spot prices fall at a faster rate than the back-end in a risk-off environment.

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