Everyone Is Scratching Their Heads When It Comes To The Oil Market

Many of my readers know that I'm an avid golfer. And many of my golfer friends know that I specialize in energy investing. So it's no surprise to say that energy investing is about 1,000,000 times harder than golf. At least in golf, the ball eventually goes into the hole. In energy investing, it can feel like falling into a bottomless pit for days and even years.

So the latest price action in oil appears justified to the bears, and unjustifiable to the bulls. We are in the latter camp. Hell, I've gone as far as to blame bad demand. But the troubling thing right now appears to be that no one has a super good explanation of what happened. The Saudi Energy Minister came out yesterday pointing fingers at speculators again. 

With regard to global oil demand, Saudi Energy Minister Prince Abdulaziz bin Salman, said, "It's not weak." Further adding that, "people are pretending it's (demand) weak. It's all a ploy."

In addition, ABS also addressed one of the concerns we brought up this week (in our write-up, when is a supply cut not really a supply cut), noting that the market is misunderstanding the recent increase in oil exports. Crude exports are impacted by seasonality and normally dips over the summer followed by a rise in September and October. "It's an abuse of numbers."

We think it was very important for ABS to address this concern. But while it is factually correct that overall crude exports rise following summer power burn months, the reality is that the net impact of OPEC+ crude on the market remains unchanged from a year ago. From a supply standpoint, the market doesn't see a cut, which is why we argued for more to be done to change perception.

So are speculators to blame?

Mr. Market is bipolar. He swings to wild extremes and sentiment usually follows price. So yes, I do believe the recent positioning swings have contributed a large part to oil's fast rally and a similarly fast drop.

But the entirety of the blame cannot just be on speculators. They are but the final straw that broke the camel's back. Fundamentally speaking, we are not as tight as we expected, and this is likely allowing speculators to wildly move markets. As some physical oil traders have reported on Twitter, there were large quantities of West African crude that were unsold heading into November. If the oil market is tight, this is not what normally happens.

On the other hand, you have data providers like Kpler showing a material drop in floating storage.

And oil-on-water is counterseasonally declining.

So what is it exactly? Is the physical oil market tight or loose? Is the market going into a deficit or a surplus?

I think if you were to take a step back and think this through clearly. The conclusion is straightforward: