Summary

• The oil markets possess an innate, historical tendency to overshoot to structural extremes before undergoing a violent turnaround, both on the upside and the downside.
• Following a period where Brent and WTI crude peaked (on a closing basis) at the prominent psychological levels of $112 and $114 a barrel respectively, prices have undergone a precipitous, momentum-driven decline.
• To the disciplined macro-observer, this aggressive sell-off reveals a profound, systemic disconnect between paper market participants and the unyielding realities of the physical oil complex.
• The physical reality of the oil complex suggests that the market is severely underestimating the logistical lag in supply restoration and the sheer, unprecedented depth of the global inventory deficit.

By Jim Puplava, CFP

Introduction: The Paper Illusion vs. the Physical Reality

The oil markets possess an innate, historical tendency to overshoot to structural extremes before undergoing a violent turnaround, both on the upside and the downside. We