Bullish or Bearish on oil ?
When China eased its lockdown many analysts were expecting WTI to go beyond $100 (Amrita Sen, Francisco Blanc and Jeff Currie just to name a few). However China's growth has disappointed and the price went down significantly. Now with the Saudis and Russia propping prices up with their cuts have created a new momentum for oil. Do you guys think that this sharp increase will have legs or it will be short-lived?
For the record, nobody in the industry actually listens to Amrita...she can connect any set of dots to justify $100 oil..and a broken clock is right twice a day.
The OPEC+ cuts certainly help put a floor on price, but there's also a supply component in the US with SPR levels at all-time lows. Now you can get into the weeds on if the DOE needs to refill, whether it needs to be refilled for the sake of structural integrity of the caverns, yadda yadda, but those are subjective policy views I don't really want to dive into.
A material reason that oil did not increase to peak levels despite non-SPR inventory levels trending down w/w is that you had the SPR releases to offset that. Now with the SPR buffer at least marginalized, production profiles trending downward as you migrate to lesser quality rock, capex programs still prioritizing return of capital initiatives, and a wave of consolidation in the private space, the supply side of the oil curve gets a little bit hairy. Where is the incremental barrel coming from? Do I expect robust demand from China anytime soon? No, but I also don't expect demand to fall off a cliff from today's levels domestically barring a recession. So supply and demand is out of balance, hence the ~$20 move up in WTI since June.
I don't think oil is going to $100. I don't think oil is going to $60. I think a steady state price, on average, of $80 WTI (banding between $70-$90) is the long-term norm.
Thanks a lot for your reply. Really insightful. Just out of curiosity what's Amrita's gain in being that bullish (just if you happen to know as she seems to be quite notorious in the industry) ? Anchoring bias ? Conflict of interest?
Honestly, I think she believes it herself. Confirmation bias in the research product she puts out.
Cynic in me thinks her bills are footed by operators needing capital and use her research as justification to underwrite investments. “Of course we should invest in this project, oil is going to $120!!!”
Yeah, makes sense. Thanks again
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