What’s the Catalyst for a Sustainable Move Above $80/bbl? We Don’t See it Till We Near 2H10 $USO

Crude’s recent move above $80/bbl in late-February has left some market participants to proclaim that crude has broken out of its $70-80/bbl trading range. We think the move above $80/bbl owes largely to issues on the refining front that are likely to dissipate in the coming weeks as refiners exit maintenance. We do see crude breaking sustainably above $80/bbl, ultimately trading to $95/bbl by year-end, but view this as a 2H event, when we see inventories drawing and/or OPEC increasing their
production. Moreover, our inventory assumptions (assuming flat OPEC production) suggest that backwardation is unlikely until
4Q10.