Is it so wrong to want something more than what we have? One would think that after the rally we’ve seen since the major fail early last week, we should have something to focus on today. Nope. Oh sure, there’s plenty of people telling the teeming millions that OPEC’s production cut continuation is at the base of the rally. Not this guy. I’d rather play Katy Perry and write up a good song to diss the Taylor Swift barrel-heads. I think that there’s much more to this move, and it pains me to talk about it because we were so far ahead of the game. Sort of like when all of these pundits were busy back in 2015 saying that the U.S. was the main culprit for the oil oversupply. Back then I was adamant about the overproduction that was coming out of Iraq and even more damning, their backdoor deals to China well under OSP (official selling price) from OPEC. Back then I was also quick to note that nobody wanted to blame them because they all felt that after years of losing out on the big rally between the Gulf War (2003) and the peak in 2008, they deserved a little leeway. Well, that’s obviously over.
No, I think that this rally is more about the demand side. This is my basketball coaching acumen coming out. I’ve always preached that a good offense will always beat a good defense. I know this because, at the end of the game, the team with more points always wins. So when we’re talking about oversupply, the biggest way to get rid of all of that is to increase demand. Sure there’s some heart in taking to task the production cuts, but no matter what, that’s a temporary fix. What needs to happen is a paradigm shift in economic recovery on a global scale. Thing is, we’re getting there. The U.S. is chugging along with full employment. The EU is finally seeing the upside in the euro again. China is figuring out how to play nice with America and helping keep North Korea in check. Throw in a steady pattern of growth in Mexico and Canada and we’re ready to pop the Dom.
Here’s where I take this to a seriously strange angle. No matter what your personal opinions are, the way that President Trump is working the business side of America is worth applauding. When I see the Saudis investing $50 billion in something other than social reform for their country, I am more than impressed. From there he’s off to Israel and now it’s on to the G-7 and the EU. Making business deals is what this guy does and if we just stop to look at the U.S. as the world’s biggest corporation, this isn’t such a bad thing. If there’s even the slightest reason to believe in what I’m saying here, go figure that demand for crude, gasoline and diesel fuel are feeling the vibe. For the past few years, we’ve all whined and cried scared of all of the oversupply. The flip side of that fear was not about cutting back on production, it’s a reality that once we see higher demand, we’re getting to some serious limits. Here in the U.S., we’re pushing out refining system to the limits. Outside of the U.S., we’re seeing plenty of oil production, but we’re coming out of a period where investment into new production skipped a few years. When and if demand does come back, there’s a distinct possibility that we have a big gap to leap and the distance between $50 WTI and $75 WTI is a lot closer than we think.