What more can I possibly say?
Oil is trading at a 3.5 year high. Missiles are flying over Riyadh. Global oil inventories continue to fall counter-seasonally and are headed to their lowest level in a decade by the end of this year. OPEC compliance consistently remains well over 100% and Saudi Arabia has indirectly endorsed an $80/bbl target (makes sense given their fiscal breakeven of ~$85/bbl). Venezuela is imploding before our eyes with production falling by 0.1MM Bbl/d per month (contributing to OPEC’s production falling sequentially for 7 months now). President Trump has pulled the US out of the Iranian nuclear JCPOA threatening both Iranian exports (0.2-0.5MM Bbl/d over the next several months) and longer term production growth potential (0.5MM Bbl/d from the Azadegan and Yadavaran fields that will likely go unfunded by foreign investors). US producers continue to adhere to their pledge to constrain spending to within cash flow and redirect excess funds towards share buybacks and dividend increases thereby lowering their ability to ramp production while at the same time labour scarcity worsens and pressure pumping equipment availability slowly tightens. Oil demand growth is absolutely rocking with Q1 demand up 2.2MM Bbl/d YOY and is set to increase by ~1.8MM Bbl/d YOY. Did we mention that oil is trading at a 3.5 year high?!?. What more can possibly be said to convince investors that the turn is real and that the fundamentals for oil in the short, medium, and long term are overwhelmingly bullish???
When we said on CNBC on December 31, 2015 that we thought oil was heading to $50/bbl within the next year many thought that we had started to celebrate New Year’s Eve a little too early in the day (oil was trading at $37/bbl at the time). When we wrote in early 2017 that given our non-consensus view that the oil glut would be eliminated by YE’17 we thought WTI was heading to $60/bbl by the end of 2017 (oil was stuck in a $45-$50/bbl trading band due to the belief of limitless oil shale growth) accusations of “perma-bull” were thrown around. Early this year we wrote that given inventory trajectories we believed WTI would hit $70/bbl by YE’18 (we were too conservative!). So now, with oil trading above our $70/bbl call and making a 3.5 year high where do we see things headed? (By Eric Nuttall, CIM, Partner, Senior Portfolio Manager, Ninepoint Partners)