Oil’s Bumpy Road to $100

The bank panic has driven oil prices to the lowest levels in 16 months, and even Goldman has capitulated. But demand fundamentals have survived a global tightening of financial conditions. The re-opening of China is going without a hitch. Global official and commercial storage remains near the lowest levels in modern history, levels always associated with far higher prices. The Biden administration has flip-flopped  on Alaskan drilling and refilling the SPR. But OPEC+ will lower production quotas in response to today’s low prices. Russia is cutting production, nominally in retaliation for G7 price caps on crude and refined product. But it’s as much due to the reality that Russian refining runs will have to be reduced  in light of increasingly difficult logistics in seaborne shipping. Russia is using ships as floating storage, and use of smaller ships to aggregate volumes on the high seas is contributing to a spike in shipping rates. More Russian cuts are coming. We reiterate our call for $100 Brent this year.