The Fundamentals point to higher oil price - Sept 19

[dan_s]

As I have mentioned here and in my podcasts many time, U.S. oil production was lower during the first six months of this year than oil production was December, 2024. Upstream companies are not completing enough new wells to offset natural declines in older wells.

Note from HFI Research this morning.

I'm going to make this article as short as possible. I think speculators who are currently short oil will get their faces ripped off.
Ok, pack it up, I'm done with the article.

But in all seriousness, I am seeing a lot more bullish fundamental signals today than a month ago.
> US oil production weakness continues.
> US commercial crude storage set to fall to ~410 million bbls. < Measured on Days of Consumption, OECD Petroleum Inventories are lower than normal.
> Refining margins are bottoming.
> OPEC+ cheaters are complying with crude exports expected to stay low this month. < Saudi Arabia wants Brent over $80/bbl
> China's apparent oil demand is picking up. Demand has likely bottomed.
> Speculator short positioning at an all-time high.

The most important point is that I believe the bearishness is largely priced in. In our WCTW titled, "The Oil Market Is Too Bearish, Non-OPEC Supply Growth Will Disappoint In 2025." I wrote:

The oil market is reflexive by nature. It's a commodity and it's vulnerable to boom-bust cycles. By being so universally bearish in both sentiment and positioning, the oil market is going to force an extreme out of the supply & demand models. You can't have low prices and higher supplies just like you can't have high prices and high demand.

At some point, the consensus will have to realize that the non-OPEC supply growth estimates are unrealistic given the price forecasts. And when it does, the beachball that's being forced into the water will inevitably explode higher.

Living on borrowed time, that's the best way I would describe the CTAs who are currently short crude.

[KGardiner]

Thanks for the HFI post Dan.

I agree their faces should get ripped off, but they never seem to learn.

Looking at the recent ZeroHedge post on OilPrice.com, I'm amazed just how far the Net Longs/Shorts went below the darkest days of 2020. I find it incredible that the oil market is so much worse off today than in April 2020. How can that be?

https://oilprice.com/Energy/Oil-Prices/Hedge-Funds-Have-Never-Been-This-Pessimistic-About-the-Oil-Market.html

Kevin

[aja57]

It's all about power and control of price. Supply/demand is so 20th century.. That's the reason the paper market is so massive. Paper market creates an artificial "price control". Response is decrease supply. The issues with oil parallel the issues with gold which has been price manipulated for 40 + years. If one can bust the paper trading cartel in oil and gold, then I'd be a believer in economic fundamentals.

[ChuckGeb]

Don't rule out the collusion of the short hedge funds colluding with the government during election season. Something tells me there won 't be a short squeeze and they will be net long again by inauguration day.