Easy come, easy go
WTI crude oil rose as high as $76.67 today but is now trading at $74.80, down 64-cents on the day.
I'll be keeping an eye on the daily candle. Yesterday's opening level coincides very nicely with the July high of $74.23.
That will be an important support level. As I suspected, the energy bulls dunking all over Cramer and Cathie Wood was a bit of a tell of exuberance.
As for the bigger picture, National Bank is out with a bullish note today on oil arguing that drilling discipline is a game changer that will keep global supply tight.
We are of the view that that the fundamental outlook for crude oil prices reflects extreme bullishness as we consider the supply and demand dynamics that are underway. With the Delta variant impact on demand seemingly more transient, global demand continues to march higher and is expected to reach pre-pandemic levels over the next several months, possibly exceeding prior demand levels as economic restart continues to support a rising demand trend. This demand backdrop coupled with upstream trends that are leading to tight supply is providing strong price support for oil. Combining a transparent and measured supply response from OPEC+ (400 mbbl/d/month for at least the next year), with strict capital allocation from the West and the impact of weather (~300 mbbl/d remaining offline from Ida), oil prices should continue to remain well supported. Importantly, although the sector has historically chased growth, we do think this time is different given shareholder requests to adopt a prescribed return of capital framework, which is amplified by the global stakeholder pressure to reduce fossil fuel development.
Oil companies will be setting 2022 drilling budgets in the next couple months and that will be a big tell on what's coming next but OPEC today in its report said it sees its own output below 2019 levels through 2026.
