On October 12th we were thinking something similar:
This piece seems more optimistic than the market but a run to $56 would be nice to get a short on:
$50.62 down 68 cents.
And here we are, with one (big) caveat: If the Saudis and the Iranians get into a shooting war there won't be time to cover a short. WTI December's $56.03 +0.39.
From ZeroHedge:
Overnight, following the recent Saudi turmoil, prices in the crude
complex jumped to the highest levels in over two years, amid speculation
that Saudi Arabia is more likely to back output curbs following this
weekend’s crackdown by Crown Prince Mohammed bin Salman. "It creates
some hope that the current policy by the Saudis will be continued after
March,” said ABN Amro senior energy economist Hans van Cleef. "We’re
still in the longer-term upswing, the uptrend is still intact", and
indeed Dec. WTI rose +31c to $55.95/bbl after earlier touching $56.28,
the highest since July 2015, while Jan. Brent was also up +35c to
$62.42, after rising to $62.90, highest since June 2015
And yet not everyone believes that the recent chaos in Saudi Arabia
is a bullish catalyst for oil: taking his usual contrarian stance,
Bloomberg commentator and ex-Lehman trader Mark Cudmore writes that what
happened is "largely irrelevant" for oil prices and the resultant oil
price spike has "the look of a classic head fake and may mark the final
push higher before a correction."
Attacking the key point underscored by oil bulls, Cudmore says that
"an extension of OPEC supply cuts is fully expected by the market, and
the weekend changed nothing on that front" meanwhile "oil prices are
still dominated by the overhang of potential supply that can come online
so easily from U.S. shale fields. The rig count may have been dropping
recently, but it remains 62% above the level of a year ago. And,
crucially, U.S. production is near the highest in more than two years,
according to the Energy Information Administration."
Furthermore, Cudmore is confident that what is taking place with oil
is "narrative drift" and goalseeking to justify a bullish bias as
"there’s been a preponderance of bullish oil notes during the past week.
Drawdowns in global inventories are getting investors excited,
especially since crude trades at the highest levels in more than two
years. But stockpiles are still very large historically and it’s the
elevated price which makes oil look so vulnerable." Meanwhile, positions
are at an extreme, with "long positions are the most stretched since
March according to Friday’s CFTC data" while "Less talked about news
from the weekend was Mexico announcing the largest onshore oil discovery
in 15 years.
That’s only going to impact supply in the long-term, but
it may remind traders that the overall macro dynamics of the oil market
haven’t changed -- not least from some domestic political news in Saudi
Arabia."
In short: Cudmore is happy to take this
opportunity to reset short positions not only because the current oil
price spike will send US production into overdrive but because "demand
growth will continue to be undermined by innovation in other energy
fields, while technology keeps reducing the cost of extraction and
production. Those factors are both very long-term but a potentially
misunderstood news- driven spike may be a good time to focus on them
again."
Incidentally, Cudmore's note is precisely what the WSJ discussed overnight in "Saudi Crackdown Doesn’t Guarantee Aramco IPO – Or Higher Oil"
Mark Cudmore's full note below:
Oil Prices May Be in the Process of Topping Out: Macro View
Crude prices jumped at the open Monday on largely irrelevant news from Saudi Arabia. It’s got the look of a classic head fake and may mark the final push higher before a correction.
The purge in Saudi Arabia is more of a domestic story. Crown
Prince Mohammed bin Salman was already perceived to be driving the
country’s oil policy, so consolidation of his power shouldn’t result in
any strategic shift.
An extension of OPEC supply cuts is fully expected by the market, and the weekend changed nothing on that front.
Oil prices are still dominated by the overhang of potential supply
that can come online so easily from U.S. shale fields. The rig count may
have been dropping recently, but it remains 62% above the level of a
year ago. And, crucially, U.S. production is near the highest in more than two years, according to the Energy Information Administration.
There’s been a preponderance of bullish oil notes during the past week.
Drawdowns in global inventories are getting investors excited,
especially since crude trades at the highest levels in more than two
years. But stockpiles are still very large historically and it’s the elevated price which makes oil look so vulnerable.
Long positions are the most stretched since March according to Friday’s CFTC data....
...MORE
