(WCTW) Oh No, Not Again

Oil rallies on sanction risks... We've seen this movie before.

For battered energy investors combating 2 years of sideway/bear market, the last thing they want is another geopolitical-driven rug pull underneath them.

Thankfully, the many prior geopolitical-driven price ramps have conditioned most investors not to pay attention. So if you are wondering why energy stocks aren't rallying in proportion to the move we are seeing in WTI, look no further.

Half-Truths

Markets rally and sell off on half-truths. The bearish sentiment towards the oil market for the 2nd half of 2024 was on the notion that 1) non-OPEC supplies were going to meaningfully push inventory balances higher in 2025, 2) China's oil demand was weak, and 3) OPEC+ disunity is coming at the end of the year.

None of these factors turned out to be true, but nonetheless, WTI flirted between $65 to $75 for most of the latter half.

Fast forwarding to today, implied balances so far in 2025 are showing no signs of significant inventory builds. Crude storage was already tight to start the year, but with the possibility of sanctions being imposed on Russian and Iranian crude, traders are buying first and asking questions later. Never mind the fact that this rally is coming at the expense of refining margins or the fact that sanction risk might not even be real, traders will always buy/sell first and ask questions later.

Sentiment, as expressed via money manager positioning, is starting to approach the highs we saw in previous years.

Source: Giovanni Staunovo

So is this rally justified via fundamentals?