The big head fake in energy, the one that has somewhat confused me has been how the fantastic quarterly results from the independent E+P’s has affected the domestic price of crude oil. Or, in fact, how it has not affected it.
With massive production growth going again on record in the numbers of companies like EOG Resources (EOG) and Cimarex Energy (XEC) and dozens of others, we’ve seen a glut of crude oil pour into the Mid-continent and literally search for a place to stay. While I’ve maintained that even a large influx of new crude wouldn’t have enough power to crater the price action of the domestic West Texas Intermediate benchmark, I did bet heavily that the differential between domestic crude and global crude prices would increase. That just hasn’t happened.
I made bets on the WTI/Brent spread at around $6, but hoped very much that the killer reports on earnings would translate into glutted supplies and a relatively weak WTI price, at least compared to a global Brent price that is still guided by upwards geopolitical pressures in Libya, Ukraine, Iran and Iraq.
But proving that oil trading is very tough indeed, the spread has virtually gone unchanged for the last several weeks, remaining at $6 and confounding me and, I imagine, most of the other dedicated oil traders out there. Perhaps that is the charm, if there is one, in trading oil – like Forrest Gump’s box of…