BPT Tea leaves analysis, page-588

Why oil will outperform iron ore...BENJAMIN GOODWIN Merlon Capital Partners...below is just a piece from an article written on the 16th.july.
Even with the bounce of more than 100% from March lows to USD43/bbl, oil prices reflect a more realistic view of the difficulty restoring economic activity to pre-COVID levels than the broader equity market and other key commodities (see below). For this reason, oil equities have a better risk-reward skew than the broader market, whether lockdowns are reinstated, or a V-shaped recovery transpires. In addition, medium-term supply/demand dynamics result in an upside risk bias.We explore the outlook for oil and related equities in this paper, with the key points being: The recovery in oil demand is underway, albeit at a slower pace than initially anticipated. US Shale supply is at a tipping point. Capital had become more disciplined and rigs had been declining pre-COVID. Weaker near-term demand should see this continue but at the same time, any price spikes are likely to see US supply at least partly restored. Years of underinvestment in conventional oil underwrite higher oil prices long-term.There is a disconnect between low oil prices and the broader equity market, with the former implying a protracted recovery and the latter a V-shaped recovery. Investing in oil equities therefore provides downside protection should the recovery be more drawn out, For similar reasons, oil also has a superior risk reward skew to iron ore in our view.