(WCTW) Extremes, Always
If there's one thing I can tell you about the oil and natural gas market in the years I've followed it, it is that it always reaches the extremes. Whether it's to the upside or downside, the oil and natural gas markets have the tendency to make themselves so obvious to the patient and observant trader as to make the trade asymmetric.
Look at natural gas, for example, the prompt month is now dropping below $2/MMBtu, and while fundamentals are now improving to the bull side, people are starting to panic. What happened just 45 days ago when prices were approaching $3/MMBtu and people forgot all about the surplus we had in storage?
Similarly, people are forgetting this time around that prices dictate just how fast Lower 48 gas production recovers. And with the prompt month below $2/MMBtu, the turn-in-line wells (TILs) the producers were expecting to bring on in August will be delayed. This will result in Lower 48 gas production remaining below ~102.5 Bcf/d, which will help keep the natural gas market in a small deficit.
In theory, prices should trade rangebound between $2 to $2.25, but the market is not always rational and it will push prices to the extremes.
Looking at the oil market, we see something similar.
In April, everyone was fixated on the idea that geopolitical tension between Israel and Iran would escalate to the point of no return. World War 3 was on the horizon proclaimed some geopolitical experts and Bloomberg published a headline that called for the possibility of $100/bbl oil in the summer. Where is all that enthusiasm now? Just as WTI hits the bottom of the "coil" range, people are starting to doubt the oil thesis. Subscribers are asking whether or not I still see a temporary spike on the horizon, and my answer is yes.