I'm Sorry I Ruined Your Oil Bear Party

Just as oil bulls are being mocked, castigated, and generally laughed off the stage on a daily basis as both the White House and various oil bears take one victory lap after the next, we have crude popping nicely today amid reports of escalations in the Middle East. 

As we have been noting with Members of late, the most likely explanation behind the plunging oil price has been various, ahem, interests aggressively selling the front month futures contract for crude oil and putting levered long oil bulls in a tough spot where they have conviction on the underlying bull thesis but their positions have obviously been working against them. I went long the USO ETF last week, as noted here and with Members, under the theory that most of the selling had been exhausted in the short-term. 

The pertinent issue now is whether all of the short-term celebration over the oil price collapse in most of May and all of June is actually setting up an even more explosive move higher to come. Specifically, if oil demand remains intact (China started ramping up buying again) and supply is dwindling, alongside levered longs having stopped out as shorts covered, the upside seems to be menacing as it would catch the majority clearly out of position. 

While many are countering that there is actually an oil "glut," if that were true then I highly doubt we would see the Administration draining the SPR to historically low levels. Also, crack spreads are surging, a sign of demand for oil products even as the futures for crude itself sold off hard. 

Finally, as seen on the USO monthly chart, below, the multi-year breakout remains comfortably intact.

Given the prevailing sentiment, one would think the breakout would have been rendered null and void by now, which clearly is not the case. If anything, the action looks like a healthy shakeout before resumption of the massive breakout earlier this year.