What Oil Bears Are Missing [CHARTS]

“Davidson” submits:

What is interesting is that the pessimists have ignored the drop in US crude inventories which are now ~100mil BBL from the March 2017 high. US Imports remain sluggish as we rely on domestic production to meet export of crude of 2mil BBL/Day and Refined Products of 5.5-6mil BBL/Day. US Oil Production continues to rise to new highs with a flat rig count as efficiencies let producers do more with each rig deployed.

A new wrinkle is the sharp rise in $Brent vs. $WTI to $7.50/BBL. The last time we saw a sharp rise in this differential was 2010-2014, a period of $100BBL prices. This resulted in a of consumer/industrial efficiency and lower consumption. The high cost of $Brent vs. $WTI is again associated with lower imports and a huge draw-down in US Inventories. A draw-down never seen before!

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I do not know how to interpret the US crude inventory drop, but it is interesting that commodity investors seem oblivious. Every 1mil BBL higher than expected inventory results in a drop in prices while lower than expected reports have been ignored. We still hear “Oil Glut” as the primary interpretation of any report.

With inventories falling and refining rising back to a rising trend now in the 18mil BBL/Day, rising Refined Product and crude exports, I expect at some point a sudden realization that the US inventories are short of required levels and for prices to rise.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.