Crude: Pay attention
Oh, Monday morning. Sweet Monday morning, how I love waking up to thee. Yeah, I didn’t think the teeming millions would actually believe all of that. Then again, there’s millions of other people out there that believe a lot of things that have little truth to them. Of course, at least they are doing something to follow what they believe in. That’s the thing that’s been plaguing oil, not many people are caring as much. We rallied WTI up to $55 from $44 and then right back down. The first problem was the rally up. Everyone is quick to call out a bubble when it comes to stocks or the housing market, but when it’s oil, there’s just not enough people to care about the truth. Perhaps if we all took a second to rethink that last rally that was initiated by OPEC’s decision to cut production, when it was really OPEC’s decision to bring in several major players from the trading community to ask for their sage advice.
Then we were about $10 higher because we really believed that OPEC was going to cut production. Of course, they did manage to pull out some of the overproduction, but demand was not coming back as quickly as expected. Then there was the bottoming of the US oil producers and once prices started back up, they were ready to make up for lost time. Also, part of the US producers recovery was also pushed forward by the last chance at lower borrowing costs. With a new President and more stimulus ahead, the writing is on the wall for the rates rebound. Now pay attention because it was all slight of hand and the trick was there right in plain sight. Nothing ever really changed to change the world’s sluggish demand for oil, but the only thing that did change was the way we have been seeing the shifts in supply. For the 1.5mm b/d of production that OPEC cut, the U.S. picked up 500K b/d of that slack. Now don’t hate on the U.S. producers for the recent drop in oil price, it’s America that has actually brought the crude oil import average up by 300K b/d to 8.2mm from the 2016 average of 7.9mm. And there you have it, nobody has cared to pay attention to the details.
Going forward, we’re going to hear about the possible move back up to $55 and even I, Chief Sitting Bull, think that we’ll see $60 by the end of the year. The problem is that oil is the tree falling in the forest with nobody around. It’s making some noise on the way down and it will on the way back up, but smart money is looking at the bigger picture. They see that there are more important and smart investments out there that are safer and more dependable. What’s become of oil now is nothing new. Ask the oil community what oil trading was like pre-2000 and they will tell you they operated in the background. That is similar now, but what has changed is the background is a lot bigger with more players. Those that dabble now in oil are those that know it’s worth dabbling. It’s a part of a play that completes a wider focus. What happens with oil as it goes down and as it goes back up is now just a side dish to the Surf and Turf. It has a purpose, but it’s lost the spotlight of the headline. That’s why I’m always going to be doing what I do, I’m not an analyst, I’m an entertainer and oil is my play.