The Stars Are Aligned
The Stars Are Aligned
For an oil price spike...
I am firmly in the camp that we will see an oil price spike into the end of the year. The stars are aligned and if the fundamental variables so far are any indication, I think a price spike to $90 - $95/bbl WTI is very possible.
From a sentiment perspective, no one expects a price spike this year.
China's economy is weakening resulting in lower and lower oil demand consumption.
The Fed is on the verge of cutting interest rates as it deals with a slowing US economy and softer labor market.
Hedge Funds are record bearish on commodities expecting the impending global recession to punish commodity prices lower.
All sell-side analysts see a bearish oil supply & demand outlook for 2025 as they unrealistically expect material non-OPEC supply growth.
The sentiment setup is here, but what I'm failing to see is how it jives with what I'm seeing on fundamentals (at least in the short term).
Global oil inventories are starting to meaningfully decline. The decline started 4-weeks ago.
Supply growth velocity has all but disappeared with OPEC+ actually implementing production cuts (starting in June) and US oil production falling y-o-y.
Global oil demand remains resilient despite the bearish narrative. While global oil demand growth is nowhere near what OPEC sees, it is higher y-o-y (+1.1 million b/d).
And because of low oil prices, the Biden administration will remain complacent. They will not use SPR ahead of the elections.
For the moment, fund flows remain bearish on energy in general. Impending recession fears are keeping most funds on the sidelines, but it's when the market least expects it, that's when chaos usually ensues in the oil market.