David Hay — Haymaker Daily: Wall Street Misunderstood the Memo of Understanding
An energy Daily claiming vindication: after their June-30 Daily "nailed the bottom," WTI has vaulted 17% month-to-date as US–Iran hostilities flared again over the weekend — a rally the extremely bearish positioning made possible. The disconnect Hay kept flagging — deeply depleted inventories against a depressed ~$68–71 price — is resolving. Energy equities (XLE +7.5% MTD) are lagging crude, which he reads as continuing disbelief and a chance to add; oil-service names SLB and Halliburton (HAL) look "particularly underpriced," with a multi-year Middle-East infrastructure-rebuild tailwind behind them. Expect a near-term crude pullback = another entry.
One-line take: An energy Daily declaring a contrarian oil call vindicated. Negativity toward energy "hit a crescendo at the end of the second quarter," with WTI at ~$68 on June 30 — "barely above the break-even point for producers in the prolific Permian Basin" (Dallas Fed) — even as oil inventories kept plunging along with prices, "a most bizarre occurrence." Over the weekend US–Iran hostilities flared again and crude "erupted," now up 17% from the start of the month. Hay credits the "extremely bearish positioning and sentiment" as the precondition for the rally, and notes their June-30 Daily "nailed the bottom." Now: a near-term pullback after "such a straight-up move" is "reasonable to expect" — "another chance to position against the complacent consensus." Energy stocks lag crude (XLE +7.5% MTD vs oil's +17%), which he reads as "continuing disbelief about how dire the supply shortage truly is" — "an opportunity to add to names in this sector." Oil-service entities SLB and Halliburton (HAL) look "particularly underpriced," with the multi-year, "exceedingly costly" rebuild of the Middle East's energy infrastructure as a structural tailwind. All three names are Positive.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| XLE | Energy Select Sector SPDR ETF | QT · SA · STK | Positive | Energy stocks "have also perked up," the leading ETF XLE rising 7½% thus far this month — but "surprisingly… less than the move in oil," when "typically the shares of oil producers move more than the price of crude." Hay reads the lag as "continuing disbelief about how dire the supply shortage truly is, creating an opportunity to add to names in this sector." | read ↗ |
| SLB | SLB (Schlumberger) | QT · SA · STK · FA | Positive | "Oil service entities like SLB and Halliburton look to be particularly underpriced." A one-step-removed way to play the energy re-rating, with a structural kicker: "rebuilding the Middle East's energy infrastructure will be exceedingly costly and take several years to accomplish." | read ↗ |
| HAL | Halliburton | QT · SA · STK · FA | Positive | Named with SLB as an oil-service name that "look[s] to be particularly underpriced." Reiterates the June-22 add of Halliburton as an oil-service proxy on the cheap-energy thesis; the multi-year Middle-East energy-infrastructure rebuild is the added tailwind. | read ↗ |
"View" is Haymaker's stance in this post. Research: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
2. Talking points
The setup — negativity "hit a crescendo," crude barely above break-even
- "The negativity toward all things energy-related hit a crescendo at the end of the second quarter." WTI was $68 and change on June 30 despite an "extremely precarious ceasefire."
- Per the Dallas Fed, that is "barely above the break-even point for producers in the prolific Permian Basin."
The disconnect — plunging inventories, depressed price
- "Oil inventories have been plunging along with oil prices, a most bizarre occurrence." Even last Friday, with the "Memo of (Mis)Understanding" unraveling, oil was only ~$71.
- "The disconnect between deeply depleted inventory levels and depressed prices was astonishing" — a point this newsletter "has repeatedly pointed out."
The catalyst — hostilities flare, crude "erupts" +17% MTD
- Over the weekend, US–Iran hostilities flared again, causing oil to erupt; "as of this morning, they have vaulted 17% from the start of the month, a price explosion few thought possible."
- Given "the gaping divide" over the peace-treaty terms, it's "perplexing Wall Street seemed to believe the worst disruption to oil supplies in history would almost instantly and painlessly resolve."
The vindication — bearish positioning set up the rally; June-30 "nailed the bottom"
- "The extremely bearish positioning and sentiment created the preconditions for the resounding rally." Their "increasingly bullish views of oil as it kept crashing was a lonely stance" — even bulls expected any rally "mild and delayed," with a few exceptions (Jesse Felder, Kevin Muir).
- "Fortunately, our June 30th Daily nailed the bottom, as we postulated it might."
The entry discipline — expect a pullback, use it to add
- "It's reasonable to expect a near-term pull-back in crude after such a straight-up move. If so, it will be another chance to position against the complacent consensus."
The equity read — XLE lagging crude is the opportunity
- Energy stocks perked up (XLE +7½% MTD) but that's "less than the move in oil," inverting the usual pattern where producer shares out-move crude.
- Hay reads the lag as "continuing disbelief about how dire the supply shortage truly is, creating an opportunity to add to names in this sector."
The picks — oil services "particularly underpriced," multi-year rebuild ahead
- "Oil service entities like SLB and Halliburton look to be particularly underpriced."
- Structural tailwind: "there is no doubt that rebuilding the Middle East's energy infrastructure will be exceedingly costly and take several years to accomplish."
3. In plain English
A jargon-free note on why each name matters. (Companion to the table above; renders on each name's consolidated page.)
XLE — Energy Select Sector SPDR ETF Positive
XLE is the big, liquid basket of large US energy stocks (Exxon, Chevron, the majors and services) — the simplest one-click way to own "the energy sector." Hay's point: oil itself has jumped 17% this month, but XLE is up only about 7.5% — roughly half. Normally the shares of oil companies move more than the price of crude, not less, because their profits are highly geared to the oil price. When the stocks lag the commodity like this, it usually means investors don't believe the oil-price move will last. Hay thinks that skepticism is exactly the opportunity: the physical evidence (fast-draining inventories, a real supply shortage) says the move is real, so an energy basket that hasn't caught up yet is a place to add.
SLB — SLB (Schlumberger) Positive
SLB (formerly Schlumberger) is the world's largest oil-services company — it doesn't own the oil, it sells the drilling, measurement and completion work that producers pay for when they go looking for and pump more oil. That makes it a leveraged, one-step-removed way to play a rising oil price: when crude is high and producers want to drill more, services companies get more contracts at better prices. Hay calls SLB "particularly underpriced" here, meaning the stock hasn't kept up with the improving backdrop. He adds a longer-run reason to like it: the Middle East's damaged energy infrastructure will have to be rebuilt, which is "exceedingly costly" and takes years — a multi-year stream of exactly the kind of work SLB does.
HAL — Halliburton Positive
Halliburton is the other giant oil-services name, alongside SLB — the same idea: it makes money when producers spend money finding and pumping oil, so its shares track (and often amplify) the oil-and-gas cycle. Hay first added HAL to the buy-list in June on its cheap, "extremely undemanding" valuation; here he groups it with SLB as "particularly underpriced" now that oil has broken higher. The same multi-year Middle-East rebuild tailwind applies. Because services stocks are more volatile than producers, this is a higher-beta way to bet on the cheap-energy re-rating rather than a defensive holding.
Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.