I'm starting to see a setup happening ........Now when I say a setup , I don't mean that in a bad way , maybe I should call it a lay-up rather than a setup . We have all discussed ad nauseam the supply/demand dynamic and we all agree that this precarious situation can fall apart with any further loss of supply or increase in demand , so this is how I see this jigsaw puzzle coming together .
With all the "distractions" the talking heads keep clouding the discusion with like variants , covid lockdowns in China , India backdooring Russian oil , Libyan production coming back , Iran sanction MIGHT be lifted , SPR release etc , etc , etc . All these things are made out to be the end of oil yet WTI continues to oscillate between $100 & $105 (no effect) .
Yesterday there was a big arguement here regarding weekly guestimates vs actual historical volumes which confirmed that US production was dropping , not rising . Calfrac Q1 numbers missed estimates (posted a loss) in which should have been a banner Q1 , so if producers will really drilling as Mike McGloom would have you believe why is Calfrac still losing money ?
Now on the demand side , covid cases are falling rapidly in Shanghai , Beijing isn't finding many covid cases (52 cases yesterday) in a city of millions . AirB&B announced today its forward guidance which showed a huge jump in summer reservations . Look at how busy airports are already and 9 of 10 "experts" expect pent up demand for travel to continue surging throughout the summer . All I hear is everyone has waited long enough and they all want a normal summer holiday . Are you seeing the pattern ?
I expect the poor engineer of the supply train is about to realise that light isn't the end of the tunnel , its the demand train that blew past the siding and is now racing through that same tunnel on the same track . Consider an unexpected (or expected by some) massive EIA crude draw down tomorrow , the SPR is at decades low levels and say the EU actually agree's to cut Russian crude imports . Now combine that with J Powell only raising 0.5% tomorrow but hesitating on "hawkish" talk due to a slowing US economy , those combined events would possibly be the tipping point where WTI starts to jump higher .
Canadian O&G stocks are the cheapest , best value of any asset class bar none yet many shorts still remain in place against those very stocks . When this tug of war finally snaps , it will be like a tow truck cable breaking under tension , some people will lose their heads .
Now maybe this all comes together tomorrow as described or maybe it doesn't but I am seeing the domino's in place and all lined up , once the first one goes over you will not be able to stop the chain reaction . It's a pleasant thought which I will be sleeping on tonight , see you all in the AM for the EIA numbers .