Investing veteran George Noble says the market is ignoring a warning flashing in oil

• George Noble says the market is more than happy with what’s happening in oil.

• In his view, physical oil prices war correctly, while oil futures do not.

• He sees energy stocks as the most strategic trade to hedge against losses from Iran.

Oil futures are trading around $100 a barrel on Wednesday as investors assess the fragile state of the U.S.-Iran ceasefire, but Wall Street veteran George Noble thinks the market is still not bearish enough on the issue. What’s happening with crude oil?.

Noble, a former manager of the Fidelity Overseas Fund and founder of several hedge funds, said he sees the Iran war revealing a dangerous disconnect between physical and “paper” oil.

“The physical market is pricing a war. The paper market is pricing a peace agreement.” wrote to x. “Someone is at fault.”

The spot price of Brent crude oil rose above $140 per barrel at the beginning of this month, reaching its highest level since the 2008 crisis. Meanwhile, Brent futures rose to just under $120 in early March, shortly after the war began.

Noble thinks the physical oil market is priced accurately because it reflects supply constraints in real time. Paper oil, which refers to financial instruments such as futures, is driven by predictions, beliefs and narratives that may be wrong.

Noble thinks the risk in physical oil markets is far from hypothetical. The status of shipping through the Strait of Hormuz is still uncertain, oil flows have stopped and energy infrastructure in the region remains damaged.

“This is two completely different wars being waged simultaneously; one the global supply chain has already figured out, the other can’t,” he said. “And paper oil prices are trading as if this distinction did not exist.”

Closure of the Strait of Hormuz also affects industries beyond oil, including fertilizer far-reaching implications which may have knock-on effects for agriculture and areas such as helium medicine and artificial intelligence.

While some commodities can be transported by other means, Noble noted that these solutions do not include physical oil, and there is no easy solution to eliminate the extreme disruption to global energy flows.

As the disconnect between the two sides of the oil market continues to intensify and with no clear end to the war in sight, Noble argues that investors should prioritize energy trading; It’s a playbook that other financial professionals use as well. I recommended as a way to protect against losses from economic impacts.

“Energy stocks remain the most asymmetric trade in this market,” Noble added. “When paper catches up with the physical price (and my 45 years of experience tells me it always does) the repricing will be severe”.

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