Four keys pieces of information to consider:
- The COT reports show that Commercials have never been this short, using current prices to lock-in these levels and hedge out future production. This extreme is a signal that prices are nearing peak short-term.
- Simultaneously Saudi Arabia has stated that they are actively targeting $80 a barrel. If Shale switches back on slower than current demand, Saudi Arabia will be in control of prices for now.
- $70 marks the 2010 low, $80 the 2011 to 2014 low. These are key levels for producers and their impact on margins.
- Even if Oil slows and pauses between $70 to $80 the lagged effect on oil producer stocks (and oil services stocks) will likely see prices continue to climb for some time as improved profit margins lead to even higher future earnings multiples.
- Historical seasonality is strong for oil and oil stocks through Spring and into the summer.