Oil hits $80.00! The highest level since August as supplies tighten and CPI eases.
It also appears that the toughening of sanctions is starting to take a bite especially because Germany seizes a tanker that is allegedly part of the notorious ‘shadow fleet’ that helps the Russians avoid oil sanctions and those pesky price caps. Ok, now Germany says that they only rescued this illicit tanker because it was floating at low speeds in the Baltic Sea. It was a rescue of this poor distressed black-market ship. An act of mercy if you will.
Or maybe the Germans are saying it is a rescue to try to avoid further angering Vladimir Putin, who is already upset as Joe Biden finally got the guts to try to enforce energy sanctions on Russia The problem is that he is doing it on his way out the door and won’t have to weather the political fallout from the spike in global energy prices. What a guy. I know it’s hard to think of stuff like that when you're busy trying to grab credit for a potential cease-fire agreement between Israel and Hamas but to his credit, he dares to let Donald Trump take the heat for the energy mess he left him.
President Trump doesn’t have the comfort of a robust Strategic Petroleum Reserve to back him up. Biden, as you know, not only depleted the reserve but also failed to live up to his empty promise to fill it back up Yet President Trump may have a plan to buy back better. Chris Wright, Donald Trump’s nominee for Energy Secretary, told Bloomberg the US is “quite likely” to refill the depleted Strategic Petroleum Reserve under the incoming administration.”
That means that the US will be in the market for about 160 million barrels of oil in the coming years and is another supportive factor for oil that is already facing an undersupplied market. A situation that was acknowledged by OPEC as they predicted that the global oil demand growth forecast for 2025 at 1.4 million barrels a day but the growth in oil production is only going to be 1.1 million barrels a day. And as I mentioned yesterday, there were a lot of people that were predicting that we would have an oil supply glut. Now the market is waking up to the reality that we have just the opposite.
We have been warning for months that the market has been too complacent about inventories that were too low and globally for products below the 10-year average. The market continued to bet that supplies were going to magically show up in the future. Now it is obvious that it never happened.
The market was also overestimating the demand drop in China.
China continued to buy oil on the black market and even though their growth may have been disappointing, they were still consuming a lot of oil.
In India demand has shattered records and the growth in Indian demand is only going to get stronger in the next couple of months and years.
Now in the US, we are seeing a heavy oil supply squeeze because of Biden’s sanctions. Bloomberg writes that “Concerns that oil sanctions will curtail supplies from Russia and Iran are upending the oil market’s usual price patterns in the US Gulf Coast market, home to the country’s largest oil refining hub. The price of low-quality heavy oil, which usually trades at a discount to lighter Permian crude, is strengthening on fears of new sanctions.
Bloomberg is reporting that “The price squeeze is so steep, Gulf Coast fuel makers make the move to buy more light crude, according to market participants.”
While Bloomberg mentions Iran and that is partially true, the reality is that the heavy oil comes from Russia, not Iran. Today it is being reported that the Trump team is making ready a sanctions plan for the Russia deal & Iran squeeze.
Reports also say that India and China are looking for more Saudi crude oil after Russia sanctions.
Now add to the mix of wintry cold weather. It doesn’t appear that weather forecasters are backing off their predictions of a major Arctic cold blast and the key thing for this market may not be what happens during the Martin Luther King Day holiday where temperatures are supposed to be the coldest in over a decade but what comes after that mixed weather forecasts about February. It’s keeping the market on edge. If indeed we see the Arctic winter extended into February it will be a game changer for not only oil but natural gas. The potential for extreme upward movements in both oil and gas are very possible. This is what we’ve been talking about for a while. We hope that you put on your hedges.