Oil Price News: The Death of Oil, Greatly Exaggerated?

WTI fell by another 1.6% last week and closed at $56.52, failing to maintain its initial strength despite a significant drop in crude inventories. Looking at the EIA data, the warning signs are even more obvious: gasoline and distillate inventories have risen sharply, demand signals remain weak and refiners are in no hurry to unload their barrels.

This is the kind of report that looks encouraging at first glance, all the while reinforcing the reasons why rebounds continue to turn into traps.

The Main View

Liberation day decimated open interest in WTI. For everyone from order flow traders to macro position, the tape is weak.

Open interest on Brens & WTI. Source: Giovanni Staunovo

Energy transition- Demand for oil not slacking

“Today is the day to announce that there is no energy transition, there is only energy addition and that we need to have more power,” Doug Burgum, US Secretary of the Interior and Chairman of National Energy Dominance Council at The Dii Desert Energy summit Nov 2025

There is talk, and there is reality. On one side of the aisle, we have the green parties and the hopeful; on the other side, we have the pragmatists. The green parties want a cleaner world, but sometimes forget that we all want that. Their agenda has seemed to be that if they talk, regulate and project enough, they can change reality.

On the other side, we have the pragmatists. These are people who don’t need an app to tell them that it’s raining. Or a newspaper to tell them if things are doing well or not. They see it. Their agenda is to get on with things and stay productive. There is a problem in that the ideological views of ‘western hemisphere’ politicians is not aligned with the lives and realities of the ‘global south’.

So this has left us, like in many parts of society, polarised. We are polarised on energy, sustainability, race, sex/gender, religion. And if you look at where we all started, we wanted less division, more coherence on all these matters. What we are left with is division, disagreement, war, no civil discourse and violence stemming from a difference of opinions.

The reason I am going into this is that in the energy space, we have seen a simplified version of what broader society has been grappling with.

On one side, we have the way things are, and the way things are going. On the other, we have a troop of wokeism that lives by aspirational concepts about where we are and where we should be.

In the end, reality is immutable. And in this energy space, we have now seen the aspirational carbon-emission commitments of the EU recede away like the high-water mark left by a flood. The blustering storm of overreaching targets has passed. I’m referring to the potential reversal from the EU on carbon engine bans that were due to come in 2035.

So what is the landscape now?

The bans will soften to new engine emission targets – whereby engines will be required, under current proposals, to reduce emissions by 90%.

The Pendulum

The overall point here is that, in the broader sense, society swung pretty hard to the left since 2020. People had panic on their minds and fear in their hearts. This then manifested in the 2035 carbon engine ban, new gender ideologies and regulations, kids getting sex change ops, new social-media regulations, overreach in the UK – the list goes on. The world became an overly propagandised petri dish and discourse got crushed.

“This is what we believe, and f$#k you if you don’t agree.”

We lost our common sense, we lost conversation, we lost our integrity, we lost our minds, we lost solid leadership, and we generally lost ourselves.

Green energy financing went toxic with crazy levels of “greenwashing” via ESG funds that will never see one penny of profit. All of the ESG fund projected return prospectuses literally went down and to the right. I brought this up at a finance conference/festival in Ireland in 2024, and was looked at as if I had three heads and was threatening to kill everyone. People just didn’t want to hear that the money running ESG funds were actually just selling crap. Not to be down on ESG funds, they are in a ‘post greenwashing’ phase now, thankfully. But still massively underperforming major benchmarks.

And why didn’t they want to hear it? Because then “someone else” wasn’t taking care of it. Belief systems are an easy buy-in when it’s someone else that’s going to do the‘radical change’ and hard work.

So in short, I feel the measuring pendulum – the barometer in society for the last years – has swung far to the left. Now, in the second coming of Trump, it is swinging just as hard back to the right. It never stays in the middle. So what does that mean for energy and for oil?

It means all those lofty speeches about “the end of oil demand” were just that – speeches. While the policy class played dress-up with Net Zero timelines, the real economy kept burning diesel, jet and gasoline. People still flew, shipped, built, clicked “buy now” and expected things to arrive tomorrow. Emerging markets didn’t get the memo about voluntary degrowth. The system still runs on molecules, not memes. Demand never really went away; we just pretended it would, so we could underinvest in the unsexy stuff that actually keeps the lights on.

And now the mask is slipping. The EU stepping back from hard engine bans, the quiet killing-off of hopeless ESG vanity projects, the political swing back toward “cheap, reliable energy please” – all of that is an admission that oil demand is not slacking at all. If anything, the floor is higher than the storytellers priced in. That’s the setup: years of underinvestment in supply, framed by fantasy demand curves. The narrative is cracking, but the infrastructure can’t be rebuilt overnight. That gap between story and reality is exactly where the next phase of this oil market will be priced. And so it goes!

Dallas Fed Survey notes

By how much do you expect artificial intelligence to lower your firm’s break-even price for new wells in dollars per barrel over the next 5 years?

Just on this question, I would not expect AI to play much of a part in E&P activity, with most of the deployment and efficiencies found with AI in the midstream area. This includes pumping, work overs, and production / existing wells and DUCs.

Has your firm conducted a trial using lightweight proppant in well completions?

The use of proppants was something I covered about 4 weeks ago in the ‘Shale 4.0’ report. Its use on existing shale wells could extend the well known fast production drop off lifecycles. This has the power to bring enormous amounts of oil out of existing shale plays. However, this survey finds that only 15% of respondents intend to use this in 2026.

What is proppant?

Commitment of traders

CFTC data won’t be up-to-date until Dec 31st now, but I thought it would be interesting to have a look at what Specs/ Non-commercials have been up to. As you can see in the chart below, they are in the 97th percentile short-you don’t really need COT data to know that. This is at 2+ deviations of all positioning observed EVER. I think they call this SHORT AF! In short: We have an extreme polarity setup.

There will be more downside to come. I want to be there when they step off on the long side. The trouble is, I don’t think that will be for a while.

Source: Duggan Capital: Specs positioning 97th percentile all time.

Source: Duggan Capital. Commercial longs- ‘The other side’- At max levels. 96.2% all time.

Directional Divergence

If I use our C.O.T tool to dive into this max positioning across Commercials and specs, I can see that in terms of directional divergence, ie. Long vs Short side concentration, we can see some interesting stuff.

Directional divergence is at 2.5% (label 1 in chart below). It has not been at this level since July 2017 2.7% (label 2). Even in April/May 2020 (label 3-when oil went negative), directional divergence was only at 0.8%. It seems that we are either-

1. entering a new regime in WTI oil, where we go back to pre-2018 era, of constant selling of upside on oil – coming off the shale revolution peaks OR
2. We are entering a major dip to buy period.
   I think we are in the former-so that means I’m 100% open to being completely wrong and we get a macro catalyst to make the 2nd option the tradeable event.

The Net Net– Commercials and specs are incredibly deep on their positions.

Source: Duggan Capital. Directional divergence (Long vs Short)

If we look at what happened in 2017, when directional divergence was at +2.7% and trending down-we see that at that point-price bottomed, resulting in a 49% rally +$35 in 469 days. Let’s look at another.

In 2020- May- price reacted off negative prices, putting in 500% rally in 686 days.

Even in April this year- ‘Liberation day markets’, oil sank to $49, then put in a 52% rally in 75 days. With a peak put in around the 12 day war.

In summary- I think this alone is not enough for me to want to get long. But I think we really are in stretched dynamics on oil at the moment. As our lord and saviour of COT Jason Shapiro always says, let price confirm your hypothesis -this is what I am also waiting for before I commit to a long strategy. I was looking for it to happen last week, but there was simply no supported buying at all, and the short thesis from 3 weeks ago in the report ‘The Glut’ still holds.

Trade guidance from Nov 1st. WTI Daily bars. Q VWAP.

Shortest since Dec 2018. I dont think they have any more firepower.

Commercials Long

Long inflection point since 2018. Looks like they will step back purchases from here.

The Trade

The death of oil has been greatly exaggerated.

WTI. Daily bars. Yvwap

This is tricky times. The lure of calling a bottom here is strong. The reason for this is that both sides of the tape are at what appear to be crowded levels. In particular, the specs could be maxxed out short. Therefore a 2 to 3 point ($2-$3) rally could wipe the floor with them. So I like the long side more than short. As I said last week, I prefer to buy dips than sell rips here.

WTI. 30mins. Weekly VWAP

So if we can make it back to $59s, specs will reach for a sick bag. While this has been a year of large macro catalysts getting priced in and out extremely fast, I think the flash point will be geopolitical war risk. A flashpoint of hostilities in Venezuela or even Russian intervention – however I dont see Russian invlvement so far from their own shores.

So we can look at tightening of embargoes and US stranglehold around the Venezuelan shores, blocking of all tankers, not just embargoed perhaps. At the end of the day it wont matter. We trade price not news.

Merry Christmas oilers!