This analysis completely misses the physical reality of the market.
First, looking only at headline crude prices ignores the historic high crack spread. Consumers are already paying the equivalent of $140+ for fuel because of a severe refining bottleneck. The oil price didn’t cap at $125 due to "academic elasticity". It was artificially suppressed because the US drained its SPR to tank bottoms and China temporarily stopped importing. Now, those inventories are empty, China is buying again, and the physical deficit is massive.
Second, the shortage of high-sulfur (heavy) crude is acute. Western refiners cannot easily process light sweet crude to make diesel without cutting their utilization rates.
Finally, you underestimate the asymmetric threat. It is not about the size of Iran’s navy. A single drone strike near Bab-el-Mandeb or the Basra terminal will force UK/EU insurers to cancel war risk coverage. That instantly shuts down Saudi and Iraqi exports.
Paper manipulation can only hide a physical shortage of heavy crude for so long. The reality will break through.
Interesting perspective. Thank you. Where I differ from your view would be on refined products which show a different picture. Prices stay high and show stress from capacity tightness. Another point of debate would be on China appetite to continue to take barils out of strategic reserves in the months to come.
I agree with you about much make-believe, and I think its about anxiety about our urban world. The largest population countries, e.g. India, China, the US etc are extremely inter-dependant, and we're all still so dependant on burning oil. Energy independence via renewables could help to reduce anxiety. How about that possibility? Ian
Love the charts and the reasoning you bring, as always.
Wondering if some of the data went underground, but that is, of course, not going to be easy to validate, one way or the other.
Key question, looking ahead, is if the intervening break in hostilities allowed those countries that already drew down their reserves (including the US) to refill them enough to be positioned to walk down that path once again. And if so, for how long?
3 things; China is special because of its size. The majority of oil experts did not expect 200, most of the estimates was 130-160. What was a huge surprise how well the system handled this shock so far.
To your point about the posturing Bulls; rational analysis by rare types like yourself amid the chirping click baiters personified by those that wear Cartoon Avatars as serious aliases for engagement CLAIM that “No One” thought Oil would be capped below the $150/200 Window?!? Information embedded in that absolutist falsity is that they’ve admitted that they’re exceptionally POORLY READ. Keep up the Great Work Robin; your level headed analyses always a worthy read.
This analysis completely misses the physical reality of the market.
First, looking only at headline crude prices ignores the historic high crack spread. Consumers are already paying the equivalent of $140+ for fuel because of a severe refining bottleneck. The oil price didn’t cap at $125 due to "academic elasticity". It was artificially suppressed because the US drained its SPR to tank bottoms and China temporarily stopped importing. Now, those inventories are empty, China is buying again, and the physical deficit is massive.
Second, the shortage of high-sulfur (heavy) crude is acute. Western refiners cannot easily process light sweet crude to make diesel without cutting their utilization rates.
Finally, you underestimate the asymmetric threat. It is not about the size of Iran’s navy. A single drone strike near Bab-el-Mandeb or the Basra terminal will force UK/EU insurers to cancel war risk coverage. That instantly shuts down Saudi and Iraqi exports.
Paper manipulation can only hide a physical shortage of heavy crude for so long. The reality will break through.
Interesting perspective. Thank you. Where I differ from your view would be on refined products which show a different picture. Prices stay high and show stress from capacity tightness. Another point of debate would be on China appetite to continue to take barils out of strategic reserves in the months to come.
I agree with you about much make-believe, and I think its about anxiety about our urban world. The largest population countries, e.g. India, China, the US etc are extremely inter-dependant, and we're all still so dependant on burning oil. Energy independence via renewables could help to reduce anxiety. How about that possibility? Ian
Love the charts and the reasoning you bring, as always.
Wondering if some of the data went underground, but that is, of course, not going to be easy to validate, one way or the other.
Key question, looking ahead, is if the intervening break in hostilities allowed those countries that already drew down their reserves (including the US) to refill them enough to be positioned to walk down that path once again. And if so, for how long?
3 things; China is special because of its size. The majority of oil experts did not expect 200, most of the estimates was 130-160. What was a huge surprise how well the system handled this shock so far.
And how well oil prices was managed verbally.
To your point about the posturing Bulls; rational analysis by rare types like yourself amid the chirping click baiters personified by those that wear Cartoon Avatars as serious aliases for engagement CLAIM that “No One” thought Oil would be capped below the $150/200 Window?!? Information embedded in that absolutist falsity is that they’ve admitted that they’re exceptionally POORLY READ. Keep up the Great Work Robin; your level headed analyses always a worthy read.