Oil bulls are dancing in the dark

Oil bulls are dancing in the dark

With oil prices climbing well above the $70-a-barrel level they struck before the pandemic, the animal spirits of commodity sector investors should be roaring.

Oil traders are certainly excited with executives and hedge fund managers predicting that a return to the $100-a-barrel era may not be so far away. Brent, the international benchmark, reached $74 a barrel this week while US crude touched $72.

Under-investment has restrained supply in the sector in advance of peak demand. Crude traders point to expectations of a post-pandemic boom in travel and the wider economy that should stoke demand for the black stuff, whatever the long-term goals of politicians to build back better “” and greener.

But the fund and investment managers who trade in oil companies rather than oil prices still appear to be in a deep slumber, at least compared with their counterparts in oil futures or physical markets for cargoes.

Scratch the surface of the bullish optimism among those trading in oil itself and it soon becomes clear why those fund managers that prefer trading in companies, from "Big Oil“ to shale upstarts, do not quite share their optimism. 

The problem is that the oil market is, by its own standards, flying largely blind. 

In normal pre-pandemic