Will a ramp-up in Oil Production cap the run-away price? Sunday 7 March 2021

Oil is popping up in the “Mind the Flop” region of the regime model. Is this something to worry about? We know that with strengthening prices, producers will at some point be enticed to increase production and new players will find entering the market profitable once again. So inevitably, supply will eventually satiate demand, and a new cycle of weakening energy prices will take over.

The below Eff. Test on USO tells a story of historical short-term weakness (8 to 23 sessions post) but this typically gives way to period of strength (distorted here by the magnitude of the Corona rout).

The below Eff. Test for Brent is the “worrying” one as it points to significant roughly 2 months post culmination. That means May, June and July are a time to consider the prospects of a slam in oil.