Brent turned higher yesterday as Trump ramps up pressure on Iran. Slightly lower this morning. Brent traded as low as USD 74.15/b (-2.4%) yesterday but managed to close with a gain of 0.3% at USD 76.2/b Trump signed action for harder sanctions/pressure towards Iranian oil exports. This morning Brent is trading down 0.3% at USD 76/b. The almost linear downward trend since the recent peak in mid-January seems to have faded a bit with price action now a little more sideways it seems.

Crude oil caught between trade war fears and Iranian supply disruption risks. Trump tariff chaos and trade war is no good for global growth and oil demand growth. Business investments and consumer spending will likely fall in the face of these highly erratic and growth negative actions. The oil bears naturally crawl out in response. But supply disruptions as so often before can then rapidly and suddenly turn everything around. Yesterday Trump signed actions for harder pressure on Iran with the potential to drive its exports significantly lower. That Trump would try to drive Iranian oil exports lower has been our expectation all along. The oil market is now caught between increasing fears that an escalating trade war will damage global oil demand growth on the one hand and possible sudden disruption of Iranian oil exports.

Longer dated prices offer good buy-in value. At least in a three-year backward-looking perspective. Longer dated prices are pushed down towards the low points over the past three years and offer good buying opportunity for oil consumers in a backward-looking perspective. However, how it is all going to pan out in the end: Trump trade war damaging global growth driving the oil price lower or Trump disrupting Iranian oil exports driving the oil price higher. Or both but with the effect that oil price continues sideways.

Front-month Brent crude in a sharp downward trend since its recent peak in mid-January. Sideways price level in the autumn was around USD 72-73/b with lows down at USD 70/b.

Front-month Brent crude is no longer in overbought territory. Challenging support of 50 and 100 dma

ICE Gasoil swaps. Deferred contracts offer good value for consumers. At least in a three-year backward-looking perspective.

Lower as OPEC+ sticks to plan of production hike while Trump-Tariff-Turmoil creates growth concerns. Brent crude traded up at the start of the day yesterday along with Trump-tariffs hitting Mexico and Canada. These were later called off and Brent ended down 1% at USD 75.96/b. OPEC+ standing firm on its planned 120 kb/d production hike in April also drove it lower. Brent is losing another 1% this morning down to USD 75.2/b. The Trump-Tariff-Turmoil is no good for economic growth. China now hitting back by restricting exports of critical metals. Fear for economic slowdown as a consequence of Trump-Tariffs is the biggest drag on oil today.

The Damocles Sword of OPEC+. OPEC+ decided yesterday to stick with its plan: to lift production by 120 kb/d every month for 18 months starting April. Again and again, it has pushed the start of the production increase further into the future. It could do it yet again. That will depend on circumstances of 1) Global oil demand growth and 2) Non-OPEC+ supply growth. All oil producers in the world knows that OPEC+ has a 5-6 mb/d of reserve capacity at hand. It wants to return 2-3 mb/d of this reserve to the market to get back to a more normal reserve level. The now increasingly standing threat of OPEC+ to increase production in ”just a couple of months” is hanging over the world’s oil producers like a Damocles Sward. OPEC+ is essentially saying: ”Produce much more and we will do too, and you will get a much lower price”.  

If US shale oil producers embarked on a strong supply growth path heeding calls from Donald Trump for more production and a lower oil price, then OPEC+ would have no other choice than to lift production and let the oil price fall. Trump would get a lower oil price as he wishes for, but he would not get higher US oil production. US shale oil producers would get a lower oil price, lower income and no higher production. US oil production might even fall in the face of a lower oil price with lower price and volume hurting US trade balance as well as producers.

Lower taxes on US oil producers could lead to higher oil production. But no growth = lots of profits. Trump could reduce taxes on US oil production to lower their marginal cost by up to USD 10/b. It could be seen as a 4-year time-limited option to produce more oil at a lower cost as such tax-measures could be reversed by the next president in 4 years. It would be very tempting for them to produce more.

Trump’s energy ambition is boe/d and not b/d and will likely be focused on nat gas and LNG exports. Strong US energy production growth will likely instead be focused on increased natural gas production and a strong rise in US LNG exports. Donald Trump has actually said ”3 m boe/d” growth and not ”3 m b/d” (boe: barrels of oil equivalents). So, some growth in oil and a lot of growth in natural gas production and exports will easily fulfill his target.

Brent crude historical average prices for the 1mth contract and the 60mth contract (5yr) in USD/b and the spread between them. When the market is tight there is a spot premium (orange) on top of the longer dated price. When the market is in surplus there is a discount in the spot price versus the 5yr. We have now had 5 consecutive years with backwardation and spot premiums between USD 11/b and USD 28/b (2022). Now the spot premium to 5yr is at USD 8/b. If market turns to surplus in mid-2025 and inventories starts to rise, then this USD 7/b premium will fall to zero or maybe even turn negative if the surplus is significant. This will depend on global oil demand growth, US shale oil discipline and decisions by OPEC+ in response to that.

US production in November averaged 13.3 mb/d and was only 0.33 mb/d above its pre-Covid high in December 2019. Growth over the past 12mths has definitely slowed down.

Down 2.2% last week and unchanged this morning. Brent crude fell 2.2% last week with a close on Friday of USD 76.76/b. The March contract rolled off on Friday. The April contract is now the front-month contract. The April contract is up 1.3% versus Friday, but this is solely due to the backwardation effect and rolling of contracts. The April and thus the front-month contract is trading at USD 76.77/b at the moment and unchanged from Friday.

The new Trump-tariffs are driving equities sharply lower this morning and copper is down 1.2%. The new tariffs are negative for GDP growth and negative for commodity demand in general.

Trump tariffs equal friction in crude logistics and refining and thus higher costs. That Brent crude is unchanged this morning rather than a full 1% down like copper is due to the deep entanglement of crude and products in Mexico, US and Canada which are bound together with complex chemistry, processing equipment and logistics.

US refineries and consumers will likely experience increased costs. Higher crude costs for US refineries as they try to get medium to heavy sour crude from other places than Mexico and Canada. The alternative is from the Middle East where supply is already strained due to the recent Biden-sanctions. US refining will be less efficient so refining margins and thus product costs for consumers will likely go up as well. The ICE gas oil crack to Brent for April is up USD 0.24/b this morning is maybe a reflection of this strain.

First round effects probably bullish on the margin. The second-round effects are bearish. Increased frictions in logistics of crude transportation and refining of products often implies higher prices. The first-round effects on crude and products are thus bullish on the margin. The second-round effects over a bit of time are however negative as they are negative on GDP growth, on oil demand and finally on prices.

How long and how far reaching? If Trump-goals of change versus Mexico and Canada are achieved, then these tariffs could possibly be reversed sooner rather than later and suddenly the second-round effects are not so dire after all. Though Trump looks like he is out to take on the whole world and not just Mexico and Canada and China. So probably not much a quick solution to be expected on the wider scope.

Longer-dated Brent crude prices down below the USD 70/b line as the outlook turns darker. Everybody wants to buy sub-70. But when we finally get there, the buyers step back as they await even lower prices. Which may or may not come of course.

ICE gasoil swap for 2027 is getting down to very favorable levels of USD 644/ton

Brent crude swap for 2027 is getting down to very favorable levels of USD 68.5/b