US petroleum product data shows that diesel and gasoline consumption is recovering strongly. Back in May, we had flagged the potential for a bonanza summer travel season that could boost oil demand.  This is kicking in.

Source: Bloomberg, Macrobond, Variant Perception

US production also remains contained despite surging oil prices. US shale producers acting more rationally will also give OPEC+ less reason to flood the market to defend their market share.

Source: Bloomberg, Macrobond, Variant Perception

We see the need to become increasingly selective in which part of the oil & gas industry to remain invested. The rise in oil prices is mainly being driven by on-going supply constraints against a backdrop of recovering demand.

Restrained production activity means that oil field services may see a slower earnings recovery than implied by the rise in oil prices, while E&P companies could be set to benefit from a period of elevated oil prices, increasing the value of their reserves. We are starting to see this in the rising gap between E&P vs oil services equity performance. The XOP (E&P ETF) has outperformed OIH (OFS ETF) off the lows.

Source: Bloomberg, Macrobond, Variant Perception

Get the full picture at variantperception.com.