Higher Oil Prices from Russian Sanctions or Head Fake?
Oil markets just saw a sharp shift. But prices dipped this morning as markets catch on to what looks like a supply and price head fake.
WTI jumped $11.62, or 17%, by January 13 after Treasury Secretary Janet Yellen hinted at new Russian oil sanctions in early December. Prices spiked, drifted through the holidays, then surged nearly $3 on the year’s second trading day.
Analysts first blamed rising oil prices on cold weather in Europe and North America, then on new U.S. sanctions against Iran in December. But by early January, weak demand took over, and markets turned bearish to close out 2024. That changed when China shocked markets by banning tankers suspected of hauling Russian, Iranian, and Venezuelan crude.
When the Biden administration announced fresh Russian oil sanctions on January 10, WTI closed at $76.57, up $2.65. Last week, supply loss estimates hit 800,000 b/d, but analysts are already scaling back those forecasts.
“There is still plenty of uncertainty over how much of an impact the latest US sanctions will have on Russian oil exports. While they have the potential to wipe out the surplus we expect for this year, the actual volumes lost will likely be more limited as players find ways to circumvent these sanctions.”
After Russia’s 2022 invasion of Ukraine, supply loss estimates averaged 2.9 million barrels per day, with Brent prices projected around $175 a barrel.
In fact, Russian exports didn’t follow analyst projections at all but were remarkably stable from 2021 through 2023 (Figure 3).
Brent averaged $81 a barrel in 2022. Even after four months above $100, December prices ended lower than in January (Figure 4).
Source: EIA & Labyrinth Consulting Services, Inc.
I’m not blaming analysts for getting it wrong in 2022, but it’s surprising they haven’t learned to dial back their supply loss and price forecasts for today’s Russian sanctions.
No one knows where supply or prices will settle, and 2025 won’t be a repeat of 2022. But history shows markets keep supply moving—and Russia and Iran are experts at dodging sanctions. Investors should’ve learned by now that analyst panic is often just a head fake.
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Art I keep hearing that oil supply is rising . Thanks Peter Ziehan! But I’m also seeing Norway announce that oil production is down. I think oil production is down in the Permian as well. I believe that sanctions will be lifted on Russia soon but will any of that defeat the red queen scenario? I just can’t wrap my head around that lower oil production doesn’t mean higher oil prices…
Daniel,
I’ve known Peter Zeihan for a long time. He’s a smart guy but an energy amateur. Permian production is increasing. The red queen is a Peak Oil meme.
Don’t listen to people who broadcast outdated Peak Oil stories. My posts contain all the information that you. asked about. Use the “search” function.
All the best,
Art
Thanks Art I will check it out I have been a long time follower of the oil drum and I also read the oily stuff blog in addition I read every our finite world and listen to Nate Hagens. I think that we are going into oil shortages soon but I think that we will have momentary swings in price much like 2007. I think that it was high oil prices that caused the crash. I think that we will see oil spike and then crash but again I could be wrong 😑. I also listen to Jeff Snyder and milkshake madness and can see how the U. s will be the last best horse in the glue factory. Thanks for your time and work.
Damiel,
I encourage you–as I do all smart people with opinions–to look at the data before coming to sweeping conclusions. This is a credible reserve estimate from the IEA that is hardly a promoter of fossil fuels.
You can slice and dice those numbers any way you like but using present consumption rates of crude oil, there’s about 60 years of proven reserves and a slightly larger volume of resources. Proven reserves are commercial at current prices while resources may or may not be. Being as skeptical as you like, it’s hard to avoid concluding that there’s more than enough oil to get us to whatever civilizational cliff is out there–whether in 5 years or 50 years.
That’s my data-driven perspective. I recommend it to you unless you have DATA to support a different view.
All the best,
Art
Bonjour art,
Je vous écrit de france,avez vous une idée du moment où la production globale de brut commencera à diminuer aux États-Unis.
Ce qui signera je pense le declin définitif de la production mondiale de petrole.
Cordialement
Bonjour Petropoulos,
La réponse à votre question est davantage financière que géologique. Le graphique de l’EIA que j’ai utilisé dans le post auquel vous faites référence montre un long plateau de production maximale, incluant les réserves prouvées et probables ainsi que les ressources techniquement récupérables. Ces volumes sont probablement optimistes, mais pas totalement irréalistes, à condition que les prix du pétrole restent relativement élevés et que le capital pour le forage ne soit pas limité. Ces deux hypothèses sont risquées, mais surtout la seconde.
Cordialement,
Art
Back to Ukraine!! christoforou : https://www.youtube.com/watch?v=0iGxMtf88P8
Art,
Supply is not adequate to meet current demand. This is why inventories have dropped dramatically in the last year. Algo’s controlled prices last year. Fundamentals will control them this year. There is a new Sheriff in town who is Delusional if he believes Drill Baby Drill in the US Shale Basins are going to increase oil production. It wont happen at these prices. Hopefully he can eliminate restrictions in areas that could produce more oil at these price, California, Alaska and Offshore work at current prices. It wont happen overnight but it will happen if permits can be obtained. I cant imagine Trump lets Chevron continue increasing production in Venezuela and either Israel or the combination with the US will reduce supplies out of Iran. I have no idea where prices will be a year or a decade from now but they wont be at $60 or less. It would take a Depression to see those prices on a prolonged basis.
Carl,
I disagree that supply is inadequate to meet current demand.
What is your support for that? Where are there supply outages in the world today?
Inventories are irrelevant without a baseline for which I use comparative inventory. Comparative inventory is less than its 5-year average but that in no way indicates there is insufficient supply. Comparative inventory is not nearly as low as it was in 2022 when there were no supply outages–just higher prices.
And that’s what you don’t seem to understand, namely price formation.
What do you mean by fundamentals?
If you’re talking about supply-demand balances, forget it. I’ve documented many times in my blog posts that the correlation with price is so poor that it is statistically meaningless. Again, the correlation of price with C.I. is excellent.
If you would like to schedule some consulting time with me to go through price formation, C.I., supply-demand balances, etc., contact my business manager [email protected]
All the best,
Art
The world was heading for a deep recession before Covid which conveniently gave cover for government spending . The price of oil is too low for producers! BP has fired over 5 thousand employees. Wages have gone up, food has gone up everything has gone up but oil. How can that continue? The sweet spots that have been fracked are gone and the large companies with money are getting out of the that part of the business. Norway is warning that their oil production will soon be in decline. Maybe a deep recession is already in the cards. Or one can argue that there has been a deep depression since 2008 and it has been papered over with debt.I noticed a chart in Our Finite world that the average consumption of oil per person is down. I want to see what you are seeing with your Rose colored glasses……its just hard to be as sanguine as your are….
Daniel,
The price of oil is fine for most producers. BP’s problems are not because of oil prices.I suggest that you review my recent post on oil memes:
https://www.artberman.com/wp-admin/post.php?post=17606&action=edit
All the best,
Art