Everyone has their opinions where oil will go, not everyone can be right. There is no way to know with 100% certainty which direction we will go.
What I hope we can all agree on, is basic math. Uwti tracks wti crude at 3x the daily gain/loss. So here are some numbers. To keep things simple, let's use 60.00 wti = 3.60 Uwti, as that's pretty much where Uwti was when wti hit 60.00 intraday today (im using the July contract number, as Uwti is completely rolled over to july contracts)
$60.00 + $10.00 = $70.00 that's a 16.67% gain
16.67% x 3 = 50.01%
3.60 x 50.01% = $1.80 which brings Uwti to $5.40 if wti hits $70.00 before the next contract rollover.
To get Uwti up to let's say $9.00 which lots think this could get to, here's the numbers.
$3.60 + $5.40 = $9.00 or 150% gain
$60.00 x 50% gain = $30.00 which puts wti crude at 90.00 before the contract rollover for Uwti to hit 9.00
Last. Lets do that 12.00 gap that everyone wants covered.
$3.60 + $8.40 = $12.00 or 233.33% gain
233.33% / 3 = 77.77%
$60.00 x 77.77% = $46.66 gain would bring wti crude to $106.66. I think even the most overly optimistic person here doesn't believe wti crude is going to $106.66 this summer, let alone this year.
These number assume a positive day every single day up to those levels. If we have any down days in between (which we will) then Uwti will lag slightly behind those numbers when wti crude hits those marks. Also, when we roll over to the next contract, wti will go up again without inceasing Uwti. The last few months have been huge differences between contract prices however, and now the difference is much less. With contango really tightening up, it is no longer profitable to buy oil and pay to store it only to sell later, which could be another reason we have seen inventory draws recently instead of builds. Not the only reason obviously, Afterall it is summer drive time. But I don't think that summer drive is enough to raise wti to $70.00 beyond.
Mr market looks forward, I have heard quoted on here a few times. I think we can all agree that's mostly true. Think that summer drive time is lost on the rest of the market? Are we the only ones with this insider information? No. Likely the market has summer drive time priced in already, as we are currently starting july futures. The only thing that wouldn't be priced in is a way above average demand/consumption of oil for the summer, which may or may not happen. Could also be below average demand
Another question, if we can average a 2-3 mmbbl draw for the next 12 weeks or so, is that enough to absorb all the extra supply? That's 24-36 million barrels of draw by mid August. Still leaves around 450 million in stock when summer drive time comes to an end, and thats much higher than normal for that time of year. Then we start adding stock again in the fall.
Wti may not be done going up yet, Uwti could be a good play still. But I think the upside is very limited compared to the down side. I caution everyone involved here to pay close attention to what's going on daily so none of us get screwed over.
As with everyone else, this is just my opinion. But the math part is fact.
Good luck everyone!
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