Making The Argument For An Asymmetric Setup In Oil

Before we get started with today's topic, we need first to revisit a MEMO I wrote last year titled, "Lots Of Clarity, We Are Entering Into An Uncertain Period Over The Next 2 Quarters." In April 2022, even while oil kept rallying, I felt the upside was starting to get priced away. The market was expecting a significant decrease in Russian oil production and underweighting the globally coordinated SPR release. At the time, IEA had published a report noting that Russia was about to lose ~3 million b/d and why the global coordinated SPR release was needed (see our write-up on this).

Fast forwarding to today, while we were right to turn cautious on oil, we got a few variables wrong:

• Russia did not lose any production vs our expectation of ~600k b/d.

• Q4 oil market balances were tight, but Q1 2023 turned out to be builds pushing oil prices lower in Q4.

So what does that have to do with today's write-up?

In all my years of tracking/analyzing/following the oil market, this is one of the more asymmetric setups I've seen. Hear me out for a second here, I'm not saying this is 100% an asymmetric setup. No, there are still a lot of "worries" that can prevent oil prices from going higher. But there's a case to be made today that we may be at the exact opposite setup versus last year's April.