Someone Pinch Me Because This Doesn't Feel Real
It's been a long time in the making. I honestly don't remember the last time things went according to plan. Like the famous Mike Tyson quote, "Everyone has a plan until they get punched in the face." And for energy bulls, the last 2-years have felt exactly like that, getting punched in the face.
Just 2-weeks ago, I wrote an OMF titled, "It's Just Not Drawing Fast Enough." In it, I said:
So in totality, we are still moving in the right direction. But the pace is disappointing and the root cause is from weaker than expected US oil demand. Low refinery throughput will persist for another few weeks, so there's time to make up for the disappointing product draws so far. But for the oil bulls, we need to see product draws offset the incoming crude builds. We want to see this chart of the big 4 trend downward.
More is needed to move oil prices structurally higher. For now, we are in rangebound territory at best.
Fast forwarding to today, not only have product draws materially improved, but they are now in line with 2022 and 2023.
Gasoline storage, which has been a sore spot for the bulls, is finally back on schedule.
And looking at the overall direction of the big 4, we can all breathe a sigh of relief.
Now thanks to the strong product draws, refining margins are starting to move higher again.
As I have been saying for months now, higher refining margins are needed to support higher crude prices. Despite lower US oil production and cuts from Saudi, demand, inevitably, needs to move higher for oil to structurally move higher.
At these levels, we should see WTI move comfortably into the $80-$85 range.
Can't believe it is really happening...
Fundamentally, we are finally moving in the right direction, and I expect the pace of the bullishness to steadily increase over the coming weeks. Q1 is normally the lowest oil demand quarter of the year, so the fact that we are going to exit Q1 with an overall draw will be very positive going into Q2.
Not only are product storages now back on track, but we expect US commercial crude storage to trend bullishly over the next few weeks.