A New Bull Market In Oil?

The price of oil could be back on it’s way to $120 again. Here’s why:
• The re-opening of China will increase oil demand by at least 1.5 mln barrels per day and as many as 4.0 mln.
• Profit margins of refiners are going up and will increase the demand for Oil
• Supply is declining due to cuts in OPEC+ production and Russian production
But the big problem facing the oil market is the extent of the recession in the West.
Let’s break this down.
The re-opening of China is the biggest shock to the oil market since the invasion of Ukraine. The consensus is that they will increase demand by 1.5 mbd, which is enough to get the price of oil to rally $10-20 per barrel. But private trading sources of mine tell me they think that the demand will get to 4 mbd. That would get oil back to $120 per barrel for sure. So this factor is good for +$20 per barrel or more.
But another bullish factor just kicked in. Profit margins of refiners are an important factor in determining the demand for oil. In the final analysis, only refiners demand crude oil. Consumers and businesses never demand oil, we all demand fuel oil or gasoline or jet fuel. We demand the products of oil but not oil. So the key to the demand for oil is the profit margins of refiners.
The best way to see the profit margins is to look at the crack spread but simply looking at the relationship between the price of gasoline, which accounts for the majority of the value of a barrel of crude, to the price of crude gives a quick good idea of refiner profits.
At the high of the market, gasoline started to sell too cheaply to the price of oil and, of course, the refiners pulled back buying crude and crude embarked on a major bear market.
But that changed in the last week. Gasoline is now selling for a price that gushes profits into the coffers of the refiners. This will spark a run on buying crude oil.
It’s hard to estimate how bullish that is but should be worth at least $10 per barrel.
The final bullish factor are the cuts in production from OPEC+ and the decline in sales from Russia. It is estimated that oil production has been cut by about 1 mbd by OPEC+. This is not a new factor so it is not a big factor in looking for higher prices but it was the factor that caused the oil market to stabilize and started the shift to the new bullish fundamentals.
If I stopped here, I would be wildly bullish and look for $120-140 a barrel.
But the developed world is going into a recession which will cut demand for oil by at least 1-2 mbd. A severe recession would cut demand by up to 5 mbd.
But, so far, the market is focused on the strength of the US, Indian, and Chinese economies not a coming recession. Europe and Japan are flatlining so they don’t play into this scenario. The strength of the US economy is causing the Fed to increase interest rates which is also a bearish factor for oil but less important than the above factors.
So how do we make money?
I’m already long a couple of energy stocks but don’t have a big position.
My trading philosophy is to always for the market tell me when to buy. So I want to buy energy stocks and crude oil on signs of strength such as a break of recent highs.
I look to create major operations in the energy market this year as this is a potentially major profit opportunity.
The absolute best way to track my personal energy operations is through the Stock Navigator. It is here that I produce a daily report, The Macro Report, that details all my analysis of global markets. But, more importantly, you see my actual trades that I will be doing to make money in this major opportunity.
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