If we are producing so much oil, then how can oil be at $55? I think the reasons are complex, but let me give you some thoughts.
First, I think we are producing a ton of oil and it is putting pressure on the price. However, I think the synchronized global recovery is boosting prices for crude, and that's playing a real role for the first time in ages. We know exports of crude are running at very high levels, something that couldn't be happening if there wasn't demand.
Second, we keep hearing that Saudi Aramco wants its deal to be nice and hot when it comes next year and a higher price would sure help, so maybe the Saudis aren't flooding the world with oil. Their discipline can move prices up.
Third, the independents that have been relentless sellers of oil futures seem to have walked away or been blown away. I have always felt the obsession with selling futures was wrongheaded. Let the darned price rise and you will make a lot more money. It's important to recognize that if these companies live within their means and make a little money, they won't need to sell the futures.
A great example: Action Alerts PLUS holding Apache (APA) , which reported an upside surprise yesterday. The company makes a ton of money at $55 but had been one of the most persistent sellers at $50 in the oil universe. Let's hope the company walked away or left some protection unhedged.
Do I think this oil move will last? If the global synchronized economy continues to produce gains, I think it is an absolute yes. Which makes many of these stocks too cheap to ignore.