Oil Market Is Coiling
The oil market is like a teenager going through puberty. The mood swings are extreme and we went from the ultra bullish spectrum (back in April and May) to downright pessimism today.
Back in Spring, oil market participants bought in the theory from the IEA that Russian oil production would fall by ~3 million b/d, which prompted OECD to coordinate a global SPR release of ~1.5 million b/d. Reports came out during that time that predicted oil would hit $150/bbl by this summer. But like most consensus views, they turned out to be wrong, especially the report by IEA predicting that Russia would lose ~3 million b/d.
What's ironic about that report is that not only did it prompt an SPR response from the US and others, Russia actually saw crude exports rise over the ensuing months worsening the surplus in the market.
Now fast forwarding to today, market participants are now firmly in the camp that:
A global recession is here and oil demand will get whacked.
Russia won't lose oil production.
China's COVID policy will last forever.
US SPR releases dampening inventory draws.
But like the violent mood swings, we think the market is now too bearish. Despite all of these headwinds, oil continues to hold at the critical technical support level of $81 to $83. As we wrote earlier this week, if this is everything the bears can throw at the oil market, then it's more likely than not that we move higher going forward.
One of the key data points we urged readers to watch is Russian crude exports. As we've long been saying, Russia's crude exports is a reflection of its supply, so if it decreases, then the world is "losing" Russian oil production.