Sign of Higher Oil Prices ahead

[dan_s]

The Single Biggest Bullish Catalyst For Oil

Brent futures have recently begun to exhibit a state of backwardation, which is when near-term oil futures trade at a premium to contracts dated further off into the future. This is the first time in years that backwardation has occurred, and most analysts are taking it as a sign that the oil market finally could be getting closer to rebalancing. In the past, backwardations have accompanied a rebound in the oil market after a bust, while a contango (the opposite of backwardation) tends to occur when the market crashes because of a supply glut.

There are several reasons why backwardation is bullish, which has been discussed in previous articles. A declining futures curve makes it uneconomical to store oil, so backwardation could accelerate the drawdown in inventories. It also complicates the hedging strategies of shale producers, which could hold back expansion plans. It also is a symptom of tightening near-term supplies, although, to be sure, the flip side of that argument is that it could merely be a reflection of expectations that the supply glut will reemerge at some point in the future.

Full article: http://www.zerohedge.com/news/2017-08-1 ... talyst-oil

My Take: There are clear signs that oil supply/demand are tightening. U.S. crude oil inventories have been on steep decline since March and the rate of decline is accelerating. Also, demand for refined products has been stronger than expected. Low fuel prices are bullish for the economy and a growing global economy burns more energy.