With Joe Biden set to begin his first State of the Union address any second, it is only appropriate that WTI oil has exploded higher, and just printed at an 8 year high of 108.63, rising more than $3 since the cash market close, and more than $10 in the past 24 hours!
At the same time, Brent which traditionally trades at a premium, just hit $110:
- *BRENT CRUDE OIL EXTENDS RALLY ABOVE $110 A BARREL
One reason for that is a rather grim assessment from Goldman which echoes what we said earlier, namely that today's IEA release of 60 million barrels of emergency oil reserves will do exactly nothing to halt oil's tremendous surge higher.
As Goldman's Damien Courvalin writes, writing about the release of 60 mb of emergency oil reserves following Russia's invasion of Ukraine "we do not view this as sufficient relief, representing an only 1-month offset to a potential disruption to one-third of Russia's 6 mb/d seaborne oil export flows, for example, consistent with the rally in prices after today's announcement."
As such, Goldman reiterates its view - discussed here yesterday - that only demand destruction - through even higher prices - is now likely the only sufficient rebalancing mechanism, with supply elasticity no longer relevant in the face of such a potential large and immediate supply shock.
This leaves risk to our one-month $115/bbl Brent price forecast still skewed to the upside, with today's $105/bbl spot prices only at the level we believed was required to balance the oil market prior to any escalation in Ukraine.
Furthermore, Courvalin writes that a short-term deescalation or a potentially faster ramp-up in OPEC+ production would also not derail the bank's view for structurally higher prices, with Dec-23 Brent $24/bbl below our forecast; "Similarly, we do not expect a large price sell-off should an agreement with Iran be reached soon. Case in point, the global oil deficit in February is turning out to be twice as large as our above-consensus forecast while Iraq is experiencing 0.5 mb/d of outages, enough - if sustained and combined - to fully nullify Iran's potential return to the global oil market."
All of that means that Brent $200 calls expiring this summer look quite cheap.
The silver lining, is that at least one person is delighted by this tremendous ascent in oil prices: Jerome Powell. As we said almost a month ago, the quickest and safest way to "burn out" inflation is to send oil to $200... triggering a global recession if not depression.
If Powell really wants to burn out inflation, he should send oil to $200+— zerohedge (@zerohedge) February 8, 2022