Today oil prices collapsed ~5% after a large 8 million barrel inventory build. I have closed half of my position at a ~50% gain before commissions and will likely close the remainder within the next 2 weeks. The move in the oil price was likely an overreaction to the headline, and its time to get constructive on oil prices and E&P equities.

The US crude market continues to be awash with supply, but globally markets are coming into balance due to OPEC cuts, natural decline and a roughly 1-1.5 million barrel annual increase in demand.

Although this is a record high, its important to remember that the notional is much smaller as crude prices have declined by ~50%. On a notional basis, crude positioning is still relatively average.

CFTC Spec & Notional

While US production continued to increase and crude inventory oversupply persists, the product inventory has declined below 2016 levels, underscored by an improving NYMEX crack spread.

Crude Inventories and Total Inventories

We will likely see a healthy improvement in refinery utilization rates as winter maintenance season ends and will see more aggressive draws as more crude supply is consumed to restock product inventory.

Crude may fall a little further below $50 line, but this would be a strong opportunity to get very constructive on crude prices, with a higher exposure to energy equities as opposed to the commodity.