It’s Time We Talked…about the Bulls and the Bears

Oil markets are settling back into the “crash and recover” pattern we’ve seen over the past few weeks.  Last Thursday saw WTI crude prices climb $2/bbl higher, then Monday brought a $3/bbl crash. This morning, prices are once again recovering above $60/bbl, recouping half of yesterday’s losses. Fuel prices have seen comparable gyrations; 4-6 cent changes have not been uncommon over the past month.

We often talk about the “bulls and the bears” in the oil market, and the two groups seem to be actively opposing each other. Both sides have some merit:

The bulls see the successful vaccine rollout in the US, and expect similar results around the world in the near future. They’re also confident that OPEC will adhere to its cuts throughout 2021, keeping markets roughly balanced. When they look at fuel inventories, they see levels below the five-year average. With trillions of stimulus dollars making their way into the global economy, it’s hard to imagine fuel demand staying low.

Conversely, the bears are focused on Europe, where another wave of COVID is triggering lockdowns and dampening demand. They’re also looking at crude inventories which, while lower than last year, remain elevated overall, especially considering lower demand. US crude days of supply, which compares inventories to current demand, is still above 35 days – an unimaginable level before last year. Iranian oil adds another wild card that could overwhelm global markets. Stimulus dollars may feel good now, but the bears expect them to fuel inflation, which would raise the cost of goods, reverse stock market gains, and slow demand.

So who’s right? That’s timeless question. Various banks and analysts have carved out their position. Several banks, including Goldman Sachs, JP Morgan, and others, have proclaimed the risk of crude oil prices soaring later this year. Clearly, plenty of market participants are less certain. Volatility is rising, which can be good for fuel buyers if they know how to take advantage of market swings. If not, it’s worth talking with your fuel supplier to understand how volatility can be your friend.