distillate

Refiners do not see the post-pandemic recovery as optimistically as bullish analysts and comparative inventory suggests that markets have reimposed the same $5 – $8 discount that existed for much of 2021.

It now seems increasingly unlikely that WTI prices will return to the $80+ level for awhile because market sentiment has turned negative. That too will pass because WTI is under-priced.

The November price collapse was not because of Omicron although it was a late factor. Something more fundamental is going on with oil markets, and inflation and the state of the global economy are central.

Those who say that markets over-reacted do not understand the mechanics of price formation. Omicron is a factor but price, spreads and Cushing capacity began changing before the new variant was discovered.

I anticipate a  recovery back into the $82-range possibly followed by another downward correction.  Prices may return to $84 levels before year-end but not for long. This rally is in its final phase.

I posted a chart showing the 5.4% U.S. inflation rate on Twitter & it has gotten nearly 250 k views in two days. That reflects the level of investor concern about inflation more than it does the quality of my chart.

Except for period after the April 2020 price collapse, the C.I. increase over the last six weeks is the largest in more than 2 years. You would never guess this from the analyst banter about tight supply and oil prices going to $100 per barrel.

The present supply deficit is probably the most significant since the late 1970s and early 1980s. It has also probably passed its most acute moment.

Tight supply & other energy shortages may fuel market sentiment & oil prices through the end of 2021. There are, however, significant countervailing forces overlooked by those with a bullish oil-price outlook.

Closing prices on October 6 and 7 suggest room for price to move somewhat higher. If markets don’t correct downward before the end of the year, however, inflation will limit demand and economic activity for them.