Oil Market Thoughts

Still v bullish the oil market, have been establishing length again over the last 2 Weeks.

1) The impact of the gas shortages in Europe and Asia can’t be overstated, I believe this may lead to almost 2 mill a day of additional demand. It is profitable to fire up diesel generators now, and the gas curve is at crazy high levels all the way into 2023.

2) Some of the overproduction in the shale sector (marginally profitable projects) is probably not going to return given changing attitudes to financing this sort of project and returns being examined more closely. It was shale production that took WTI from 100+ to where we are now.

3) cost of production has to be rising, all commodities are increasing in value. This also affects the amount Saudi needs to raise to fulfill their social commitments.

4) general inflation bias. I run a small excavator hire company. We have 30 delivery vehicles. My gas and electric price just been raised by 300pct as we roll off current deal. I have hedged diesel for our trucks to avoid very similar situation. I am sure I am not the only one thinking this way, today the dec22 contract moved higher by more than the front.

5) Annual Mexican hedge deal is probably over, this is the biggest selling of oil futures the market sees every year.

6) the stuff I look at, futures timespreads and refining margins show a market which is pulling oil from storage and incentivising refineries to use as much crude as they can to produce distillates. This is reinforced by weekly eia numbers.

In summary I see 150 oil next year. Risks are the virus spreads and hammers demand again, but maybe we are through the worst of it. I am not too concerned about spr releases, this only affect short term prices in my view. Biggest worry maybe opec have a lot of spare capacity and potentially Iran may do a deal. But I think Saudi, where all the capacity is maybe looking for 100 oil. We shall see. I am long Brent futures and dec22 100 Brent calls.