It’s common sense. I’ve been saying for months that as long this ridiculous back and forth ebb and flow between OPEC supply and US supply continues, there isn’t any reason to be particularly bullish about crude.

And certainly no reason to be record long as the specs are

The relatively stable prices in January came as oil market participants assessed news and data on the status of supply from countries participating in the production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries

With petroleum product demand forecast to grow at a faster rate in 2017 than in 2016, global oil markets appear closer to balance than at any time in the recent past.

EIA forecasts a 0.2 million b/d decline in global inventories in the first quarter of 2017, in contrast to the estimated 1.5 million b/d stock build during the same period in 2016.

(…) current crude oil price levels are near the point where the market balances

Total OPEC supply is expected to increase by 0.2 million b/d in 2017 and by 0.5 million b/d in 2018. Recent estimates of production from Libya, which is not subject to any production target under the OPEC production cut agreement, average almost 0.7 million b/d in January, the country’s highest production level since 2014. Saudi Arabia recently announced it is meeting its production target, and the country is estimated to have produced slightly less than 10.0 million b/d in January.

The IEA estimates that OPEC production in January was 32.1 mb/d and that the cuts achieved a record initial compliance rate of 90%, with some producers, notably Saudi Arabia, appearing to cut by more than required.

(…) This first cut is certainly one of the deepest in the history of OPEC output cut initiatives.

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On the demand side of the balance, global growth has been revised upwards for the third month in a row and for 2016 it is now seen at 1.6 mb/d. Stronger than expected growth in Europe, partly influenced by colder weather in 4Q16, is a key factor alongside the long-term growth in China, India and non-OECD countries.

If the January level of compliance is maintained, the difference between global demand and supply implies a stock draw of 0.6 mb/d. It should be remembered, though, that this stock draw is from a great height. OECD stocks of crude and products have fallen for five consecutive months and in 4Q16 they drew by nearly 800 kb/d. At the end of the year they were still 286 mb above the five-year average level and by the end of 1H17 they will remain significantly above average levels.

In January alone, drillers and oilfield service companies raised $6.64 billion in 13 different equity offerings.

In short, the sentiment in the oil patch continues to improve even as oil prices have faltered in the low-to mid-$50s per barrel. That has translated into a record net-long position from hedge funds and other money managers, an incredible build up in bullish bets on oil.