(WCTW) Too Obvious

Sometimes, the obvious really is just that obvious. Following our OMF titled, "Peak Bearishness Returns To The Oil Market" published last week, WTI has reversed all of the losses from the past week. In the report, we said:

My job is to keep the information I'm seeing short and sweet for you to digest. The reality that's gripping the oil market today is one of sentiment and not fundamentals. Yes, the physical oil market weakened ahead of the OPEC+ meeting, and yes, there were some bearish balances in April and May, but going forward, that's not what we are seeing.

Refining margins are starting to rebound, US shale oil production is still flat, and global oil inventories should start to drop going forward. All of this leads me to believe that oil prices will be rebounding from the lows we are seeing today.

Sometimes, it's better to just keep it simple. I think we are seeing peak bearishness in the oil market... again.

Soon after the report, we found out on Friday through the CFTC futures positioning report that money managers haven't been this bearish on oil futures (WTI & Brent) since 2014. The revelation went viral over the weekend and what we saw on Monday was a short squeeze. It is very likely we see the short squeeze continue until $80/bbl WTI. Following that, we will need fundamentals to support prices moving higher, but the obvious trade is likely behind us already. The immediate price reaction following the OPEC+ announcement was not a correct one, and the market was quick to correct it.

Catalysts on the Horizon

Aside from the skewed oil positioning we are seeing, there are several other key catalysts I see on the horizon.

OPEC+

Due to political pressures, there's a good chance that the foreshadowing OPEC+ production increase announcement was likely the result of US political intervention.

By announcing that the voluntary cut will only be extended to the end of Q3, Saudi is back in the driver's seat, and if oil market balances are not as tight as expected, then they can prolong the production cut without risking the possibility of an oil price spike.

If balances are as tight as we expect, then by preemptively announcing that a production increase is coming, they can prevent oil prices from spiking. Either way, we see this as a win-win for the Saudis.

For oil investors, this means that the tight range we are seeing in oil should persist.

US oil production stalling