Forget the noise: Oil prices won't crash again

09-Jun-2015

Oil rising to $60 a barrel is displeasing some people, particularly the shorts. Some of the more extreme -- those calling for oil in the $20's – have wisely fallen silent. Others, like Goldman Sachs, who a few months ago had set their flag in the 30's, have unfortunately not gone so silent. They recently moved their flag into the 40's but they continue to talk a lot. A better strategy – though one that would require some humility — would be to stop talking and listen.

Recent and compounding data will soon wash away the walls of worry erected by the experts. Four consecutive weeks of inventory draws, each one larger than the last is irrefutable proof that a 60% decline in the rig count means something.

Shorts will downplay this trend and point to last week's surge in US production. But this could have had as much to do with sales as it did with production. I don't fully understand all the criteria used by the EIA in assembling weekly data, but I do know what some well-heeled operators have been up to. Those who could afford to store oil in leasehold tank farms began selling long held inventory when oil touched $60. Wall Street would call this arbitrage, but to an oil operator this is known as calling in a load. This is a one-off event but when you factor it into last week's 2.8 million bbl draw, you will see a clear path towards large inventory draws in the very near future. Dan Doyle, OilPrice.com (USA Today)

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