Here's How I'm Looking At The Oil Market

First and foremost, I don't think it's reasonable to assume that oil was going straight to $90/bbl after OPEC+'s surprise cut announcement. I think that's wishful thinking.

As we wrote immediately following the OPEC+ cut announcement, the rubber meets the road. Important dominos need to fall first before prices can truly break out of the bear market it's been in since June of last year.

Domino 1 - Crude rally eats into refining margins

In the week that followed the OPEC+ cut announcement, we saw refining margins take a hit. This makes sense considering that 1) refineries are now exiting refinery maintenance season, and 2) the crude side tightened while end-user demand remains unchanged.

So is demand bad? No, but in a healthy bull market, refining margins need to remain elevated in order for the physical crude demand side to remain robust. Are refining margins bad? Not at all, but we believe that immediately following the OPEC+ cut announcement, some refineries likely went on a "buyer's strike" at least temporarily to see where prices calm down at.

So what needs to happen going forward?