Weekly Oil Markets Recap - WTI Hits $59 And Energy Stocks Will Follow, Give It Time

Welcome to the sooner or later it will follow edition of Oil Markets Daily!

WTI finished the week up 3.95%.

This week saw WTI reach $59/bbl, and just $1/bbl shy now from our $60/bbl year-end call. Just a few months ago, we still remembered people saying how crazy we were to call for higher oil prices by year-end. But with US crude storage expected to draw steeply towards year-end, that call doesn"t seem so crazy anymore.

Last weekend, we published our thoughts on what OPEC will do (now it"s available for the public). And a month before that in an article titled, "Saudi Arabia Calls For An Extension Of Production Cuts, But Is It Really A Cut?" We noted that we believe the production cut would last to the end of 2018, and now with leaks confirming that may be the decision, it just goes to further illustrate that the production cut was never a real "cut" but a mere pullback from peak production.

But as WTI reaches another 2-year high, energy investors are wondering -- when am I going to be rewarded?

In our analysis of the global oil markets, the last time energy stocks materially underperformed WTI was in 2002.

At the time, fundamentals were rebalancing perfectly, but energy stocks (XLE) lagged the movement in WTI.

This time however, not only are we seeing energy stocks underperform, but we are also seeing them in MLPs (AMLP).

In our view, the divergence in both areas of the energy market is more a reflection of investor sentiment towards energy related stocks rather than actual fundamentals.

For one, MLPs benefit from higher volume of production whether in oil and natural gas, and the consensus view is that both will increase. Our view on oil is that it won"t increase AS MUCH as the consensus believes, but we still see it increasing. Gas production will also increase and Northeast remains bottlenecked which will benefit MLPs in that region materially once the pipes are online.

So, will this divergence last? No. And the last time it did lag with oil fundamentals as bullish as they are, energy stocks went on a multi-year bull market.

Take a deep breath, sit back, and watch global oil storage fall. Energy stocks will find its fair share of love from investors again, and patience is all that"s needed.

(P.S. other potential technical reasons like year-end tax selling and window dressing may explain why they have recently underperformed oil.)

Thank you for reading. For those who have found our public oil market articles insightful, we want to let you know about a unique opportunity. You can sign up for HFI Research before Jan. 1 and lock in our current rates before they move higher in 2018. Readers have found our work "indispensable and highly addictive," and if you like these articles, we know you will find our exclusive reports to be even more helpful. Sign up for HFI Research here to lock in today"s rates.

Supplemental Reading

With Energy Stocks Now Breaking Out, Is The Market In For A Surprise With Only 7 Weeks Remaining In 2017?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.