OIL Brent Long - Approach multiyear high
Updated
SUMMARY: Long, oil looks to 1100/BBL mark in the coming months.
ESG initiative is directing investment away from Oil production into alternative energies. Unlikely Oil supply will catch up with demand.
ESG initiative is directing investment away from Oil production into alternative energies. Unlikely Oil supply will catch up with demand.
Note
On November 18 news leaked out of Taiwan, Japan, South Korea, China and India that the Americans have approached pretty much every country that matters about a joint, simultaneous release of oil from each country that maintains emergency reserves. The goal being to tamp down rising oil prices. The subtext is that the Biden administration’s efforts to get OPEC and its oil-exporting partners to produce more crude have proven unsuccessful.Normally, I’d just dismiss this as media banter and rumor mongering. Stuff like this drops out of the ether every time oil prices rise. This time is probably different; Simultaneous indications from multiple countries that lack a track record of energy-related drama suggests the news is for real.
I guess the primary reason I would have normally dismissed the idea of oil releases is because…it is a really, really stupid idea.
First off, oil demand is inelastic. When prices go up or down by 10%, 20%, 50% it is rare for demand to budge at all. Only when prices go up (or down) by an extreme amount and stay there for months do we get fundamental shifts to demand. Which means any short-term price drop won’t impact the underlying market fundamentals one whit.
Second, even if every country on the planet with oil sitting in tanks or salt caverns agreed to follow Biden’s lead, they could not maintain the effort for nearly long enough to shift the demand picture. Most countries don’t have more than two months of import cover. Turns out that most find storing something like crude oil -- a material that’s corrosive and toxic -- to be difficult and expensive.
Third, what makes oil prices go down isn’t so much increases in flow but increases in production and above all storage. It is having extra oil on hand that weakens prices. Releasing crude from storage isn’t production. Releasing crude from storage reduces storage. It actually makes the market tighter.
Which means, fourth, as soon any releases end, demand fundamentals will not simply take prices right back to where they were, they will take prices higher because there is now less storage as a buffer.
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