Oil Jumps Above $80 For The First Time Since Nov. 2014

Two weeks after Saudi Arabia said it was targeting $80/bbl oil, this morning Riyadh got its wishes early when Brent hit the Saudi target, jumping as much as 1% to $80.18, following the latest drop in U.S. crude inventories and as traders continued to fret about the consequences of renewed sanctions on Iran.

This was the highest price since November 2014.

Today's jump followed a reported from Goldman titled simply "The case for commodities strengthens " according to which America’s surging shale output won’t be able to replace the potential drop in Iranian oil shipments after the U.S. reimposed sanctions on OPEC’s third-largest producer.

US shale cannot solve the current oil supply problems. Even if only 200-300 kb/d of Iran exports are at risk by year-end, OPEC is not likely to preempt this loss, only react to it. Further, any response will reduce spare capacity in an increasingly tighter market. The erosion in Venezuela and Angola oil output is accelerating at the same time ex-US growth is stalling. Only the US has seen supply surprises, but is facing growing pains with filled pipeline capacity, constraining US growth into 2019.

Goldman also noted that physical markets continued to ignore growth concerns - just yesterday the IEA warned that the surge in prices will kill demand - rising rates and USD.

Only financial markets care, which is why only gold has traded substantially lower with the risk-off sentiment. Growth concerns will likely prove temporary, realized demand remains robust and OPEC has never been able to catch late-cycle demand growth to replenish inventories before a recession occurs. And even if growth were to decelerate further, it would take global GDP growth collapsing to 2.5% yoy to simply balance the oil market! We recommend not 'riding this one out.'

And confirming that Jeff Gundlach was right in December to go long commodities, Goldman's Jeff Currie said that oil is the "Best performing asset class now posts the best ytd returns in a decade. The rally likely has room to run, particularly from a returns perspective. Oil fundamentals are now more bullish as robust demand faces supply disappointments. We are raising our 12m S&P GSCI returns forecast to 8% from 5% yet markets remain complacent. Specs have declined since $73/bbl under the mantra, 'we will ride this one out' -- dangerous words from a risk management perspective."

The paradox, of course, is that rising oil prices crush the benefit to the middle class of Trump's tax cuts; crude has rallied this month to the highest level in more than three years after U.S. President Donald Trump withdrew from a 2015 pact between Iran and world powers that had eased sanctions on the Islamic Republic in exchange for curbs on its nuclear program. As we noted yesterday, while the International Energy Agency said a global glut’s been eliminated thanks to output curbs by OPEC, it warned high prices may hurt consumption and cut forecasts for demand growth.

So far, however, demand appears to be doing fine.

On Wednesday, the EIA reported that U.S. crude inventories fell 1.4 million barrels last week, while domestic production rose to 10.7 million barrels a day. Despite surging American output, which has topped 10 million barrels a day every week since early February, traders continue to push the price of Brent higher, unconcerned about the torrent of shale production this will unleash.

Comments

chiburashka MARDUKTA Thu, 05/17/2018 - 06:47 Permalink

Use your brain: American hubris caused oil to surge. And they even went as far as to lose control over Iranian production by provoking EU to pay in euros for it and let China access those resources without limit. Now let's wait for hyper inflation to kick in, and don't forget to thank mister Donald and his Jewish ilk for that. 

---

It's okay not to be a Jew.

In reply to by MARDUKTA

blindfaith chiburashka Thu, 05/17/2018 - 08:00 Permalink

Gas $3.25 in Florida this week, and what next week $4.00 ?  How to kill the very voters who put the President in office.  What say you Mr. President?

Everything that oil touches will go up, and as we all know, going back down is a rare event.  It wouldn't just be driving somewhere like to Disneyland, it will hit heating oil, natural gas, and the list goes on, and on, and on.  And for what?  For whom, the Saudis, our great friends that blew up the Towers and got away with it?  I don't know who is America's bigger enemy, Saudi Arabia, Israel, Pakistan, the UK, France, the list is long indeed.  But if the 'powers' think this will hurt Russia or Iran, they have missed to many signs and the boat too.

Nope, the ones who will be hurt the most are Americans. America's powers are under question everywhere, so make sure more questions get asked, will be a sure fire way to make America not so great.

In reply to by chiburashka

rickv404 blindfaith Thu, 05/17/2018 - 08:30 Permalink

$3.25? I'm seeing about $2.79 around Central Florida, but you're right, this will help Democrats win in November if nothing else. It's inflation. We got a tax cut and Omnibus and we have to pay for it. If Trump had gotten, or gets, his trillion dollar infrastructure, maternity leave and whatever else he wants, we'll see $4.00 for gas again, for sure.

In reply to by blindfaith

tion rickv404 Thu, 05/17/2018 - 11:20 Permalink

>It's inflation.

No. It is manipulation. Inflation and dollar value loss since last highs hasn’t even begun to be priced in yet. Last highs were manipulated, lows were manipulated beyond belief as was necessary to properly secure this next cycle, this current cycle has been baked in for awhile. Inflation, dollar value loss, will probably start getting priced in in earnest when they are ready to pull the plug on this credit cycle. At least we have a president willing to negotiate, we will be truly lucky if we only see $4/gal prices in flyover. This cycle would have been coming without your tax cuts or a Trump presidency or anything he does.  Everything has been weaponized. But if you look on the bright side, the Hilary timeline ‘EMP’ false flag to cow us into submission seems very unlikely now. Bioweapon, still on the table. These people are wicked.

Have you planted some fruit or nut trees this spring? Don’t forget your cross pollinizers ^^

In reply to by rickv404

mily Thu, 05/17/2018 - 06:16 Permalink

One thing too many for overleveraged debt serfs running on fumes from month to month. "honey, do we really need that brand new BMW X3? used honda civic will do..."

ItsAllBollocks Thu, 05/17/2018 - 06:21 Permalink

A new alliance was formed between Israel, US and Saudi Arabia to destroy Iran. Part of the deal was, as Saudi Arabia needs oil to be priced at $80 per barrel to survive, the price of oil would rise to $80 per barrel. It's that simple.

AUD Seasmoke Thu, 05/17/2018 - 08:22 Permalink

It is odd at the moment, oil & the commodity index is well up, yet AUD is weak, credit in Australia is weak. Don't know about Canada & other countries, but in general the commodity index correlates well with AUD & other similar currencies.

Something will have to give soon enough.

In reply to by Seasmoke

rickv404 Thu, 05/17/2018 - 07:54 Permalink

Just more inflation. We have to pay for our own tax cut and Omnibus spending by these crooks in D.C. Trump is more of the same and he and his party have snookered the simpletons in this country, once again.

Sapere aude Thu, 05/17/2018 - 08:45 Permalink

oil has to be over $80 and again porkyy pies in ZH story.

it will not unleash more shale as shale is already pushed to limit in the lost game of pretending there was oil glut just by pumping oil costing $80-90 and selling it at $50.

Shale a ponzi at anything under $100 oil was squandered in a propaganda game of fake news that any oilman knew was doomed to fail.

 

shale is being pushed anyway as that is nature of shale. Keep drilling more and more to offset massive declines

Solio Thu, 05/17/2018 - 09:39 Permalink

Paper games. They gonna bump it up,

bump  it up,

bump it up, up, up!

Finally everybody is broke

then your organs gotta go, too.

 

BankSurfyMan Thu, 05/17/2018 - 09:55 Permalink

Anyone else thinking about jumping too? "Don't do it Man! Think about your future, your wife and kids, family and friends!" Your gas guzzling v8 and payments! Climb down and let's talk about it! Next!

kbohip Thu, 05/17/2018 - 13:17 Permalink

$80 a barrel oil?  The only thing dumber would be running an auto company and announcing you're going to stop making cars that get good gas mileage and make only trucks and suv's instead as the price of oil goes up.