Daily LNG price update (short squeeze)

The oil price is going nuts now, up another 6% today to $58.10 as I speak. Don’t buy the hype, it’ a classic short squeeze. I still expect we’ll revisit the lows again, though am comfortable that we’ll not go much lower barring another global shock.

Some good analysis of the falling US rig count, the trigger for the squeeze, from BofAML illustrates why oil ain’t going to rise sustainably:

The devil is in the details: The market is likely too excited about falling rig counts. Even after the natural gas experience, the market fails to appreciate that the relationship between rig count and production can be deceptive. Headline rig count declines may look impressive, but as we look at the data, much of the drop in oil rig count has come in low yielding vertical/directional rigs – i.e. the low-hanging fruit. Even within horizontal rigs, much of the decline has come in lower performing plays or lower tier counties within high quality plays. In some cases, we’ve seen a reallocation of rigs between counties within plays. This was particularly prominent in Midland last week. The most productive rigs will likely remain as long as possible, esp where hedges are in place, until redeterminations or cash flow issues force additional cuts. However, there are some positives. Some good rigs are being lost with the bad, and rail costs are forcing declines in high quality Bakken counties.