Energy Report: Santa Slide

Oil prices are slipping into the holiday as a new strain of COVID-19 is overshadowing a relief package that Congress finally passed and concern that Russia is getting trigger happy on increasing oil output.

It seems Russia is seeing strong demand for their oil as Asia demand is strong and global inventories are tightening. Reports show that Russia wants to have OPEC Plus raise output by 500,000 barrels a day in February. Believe it or not, we may need that extra oil. Plus breaking reports that an oil refinery in Russia has caught on fire. 

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Source: Unsplash 

Javier Blass at Bloomberg points out that once again the global crude floating storage had another big drop last week at 2 million barrels a day bringing the total quite close to ‘normal’ levels, on @Vortexa  data. The global crude oil supply and demand clearly is in a big deficit right now, despite the lockdown according to Blass.

I agree. Crude oil has all the makings of a semi supercycle as demand is coming back strong even as Europe continues on lockdown. U.S. demand will also start to rebound as the Covid vaccines become more available. The massive cuts in spending would suggest that oil producers will not be able to meet demand once the world reclaims 100 million barrels of demand per day. Those that doubt that supercycle prediction point to the U.S. shale patch. They believe that U.S. shale will be able to rise to the occasion and meet any shortfall. They point to a recent uptick in oil rig counts and the prospects for better prices.

Yet the shale optimists are not considering the financial condition of shale producers, They forget the inability for many to raise capital. Even if they can, banks who want to go green are not apt to lend money to dirty little oil companies. On top of that, you have an incoming administration that wants to get us off of oil. That goal will make it impossible for shale to pick up the investment slack for the globe and that means that we are headed towards a future oil price spike. Perhaps use the correction as an opportunity to get hedged for the coming spike.

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