There is an entire class of people who spend their careers counting barrels of oil. Oftentimes they're compelling and they highlight unusual and seemingly meaningful flows.
Then came the Iran war and closing of the Strait of Hormuz. By any measure, this was the biggest disruption in oil market history as one-in-five barrels pass through it daily. The loss of 20 million barrels per day quickly led to a spike to $120 and analysts were near-unanimous that if the crisis lasted for three months, oil would rise to $200.
Instead, here we are more than three months later and WTI is trading just below $70. Now the war is over and oil appears to be flowing again, though still at reduced rates. Saudi Arabia was able to eventually divert about 35% of the missing oil via an east-west pipeline and SPR releases certainly helped. A big surprise was that China dropped imports by around 4 million barrels per day in a big help in cushioning the blow.
Still, the price is nearly impossible to square. Oil analysts are losing their minds and oil bulls are losing their shirts. It's like the missing barrels somehow didn't matter, even though global consumption has remained nearly consistent through the war.
Obviously, commercial inventories have been drawn down on the expectation (proved true) that Trump would end the war and prices would fall. Those holding oil in storage rightly saw an opportunity to de-stock and the likelihood they would be able to refill inventories at lower prices later.
The question now is: Are those tanks empty? Oil still isn't flowing through the Strait and may never return to the pre-war baseline. It's hard to believe that oil is sub-$70 but here we are.
So is this some kind of squeeze on crowded longs? I'm sure that's an element of it but it's tough to be confident in what's happening. What I am increasingly confident of is that anyone with excess commercial inventories is going to stop selling and countries that have the flexibility to halt SPR releases will. That should provide support from here.
On the technicals, the round trip starting point was $67.83 so that's a spot to lean against.
I think this all looks like a blow-off bottom but these things can overshoot.
