In our Tuesday OMF titled, "Short Squeeze In Oil But Not So Fast." We said:
I believe what we are seeing here is the short-covering in crude, but because refining margins are not matching the latest rally in crude, we think fundamentally, this is not supportive.
As the healing process is underway, the only way for oil to meaningfully move higher and stay there is for refining margins to rally in tandem. Given that is not the case at the moment, we think $76 to $77/bbl WTI is the near-term top. However, as the market consolidates around this range, we could see refining margins once again reverse higher, which will give crude more room to rally. This back-and-forth process is likely needed for us to sustainably move higher.
Fast forwarding to today, I did not expect crude to have declined so quickly, let alone in the face of bullish fundamental data. The oil market is weird. It rallies on news you don't expect to be bullish, and it falls on days when fundamentally bullish news comes out. You are not alone if you put up your hands and do the shrug emoji.
But like everything we do in life, we can only focus on what we can focus on. So I bring you good news on that front: