Bouncing up again after hitting the 200dma. Bitter cold winter storm in Texas adding to it. Brent crude continued its pullback yesterday with a decline of 1.1% to USD 79.29/b trading as low as USD 78.45/b during the day dipping below the 200dma line while closing above. This morning it has been testing the downside but is now a little higher at USD 79.6/b. A bitter cold winter storm is hitting Texas to Floriday. It is going to disrupt US nat gas exports and possibly also US oil production and exports. This may be part of the drive higher for oil today. But maybe also just a bounce up after it tested the 200dma yesterday.

Some of the oomph from the Biden-sanctions on Russia has started to defuse with arguments running that these sanctions will only delay exports of Russian crude and products rather than disrupt them. The effects of sanctions historically tend to dissipate over time as the affected party finds ways around them.

Donald criticizing Putin. Biden-sanctions may not be removed so easily. In a surprising comment, Donald Trump has criticized Putin saying that he is ”destroying Russia” and that ”this is no way to run a country”. Thus, Donald Trump coming Putin to the rescue, removing the recent Biden-sanctions and handing him a favorable peace deal with Ukraine, no longer seems so obvious.

Deeper and wider oil sanctions from Trump may lift deferred contracts. Trump may see that he has the stronger position while Putin is caught in a quagmire of a war in Ukraine. Putin in response seems to seek closer relationship with Iran. That may not be the smart move as the US administration is working on a new set of sanctions towards Iranian oil industry. We expect Donald Trump to initiate new sanctions towards Iran and Venezuela in order to make room for higher US oil production and exports. That however will also require a higher oil price to be realized. On the back of the latest comments from Donald Trump one might wonder whether also Russia will end up with harder sanctions from the US and lower Russian exports as a result and not just Iran and Venezuela. Such sanctions could lift deferred prices.

Deferred crude oil prices are close to the 70-line and are still good buys for oil consumers as uplift in prices have mostly taken place at the front-end of the curves. Same for oil products including middle distillates like ICE Gas oil. But deeper and lasting sanctions towards Iran, Venezuela and potentially also Russia could lift deferred prices higher.

The recent rally in the Dubai 1-3 mth time-spread has pulled back a little. But it has not collapsed and is still very, very strong in response to previous buyers of Russian crude turning to the Middle East.

The backwardation in crude is very sharp and front-loaded. The deferred contracts can still be bought at close to the 70-line for Brent crude. The rolling Brent 24mth contract didn’t get all that much lower over the past years except for some brief dips just below USD 70/b

ICE Gasoil rolling forward 12mths and 24mths came as low as USD 640/ton in 2024. Current price is not much higher at USD 662/ton and the year 2027 can be bought at USD 658/ton. Even after the latest rally in the front end of crude and mid-dist curves. Deeper sanctions towards Iran, Russia and Venezuela could potentially lift these higher.

Forward curves for Brent crude swaps and ICE gasoil swaps.

Nat gas front-month getting costlier than Brent crude and fuel oil. Likely shifting some demand away from nat gas to instead oil substitutes.

Brent crude was already ripe for a correction lower. Brent closed down 0.8% yesterday at USD 80.15/b and traded as low as USD 79.42/b intraday. Brent is trading down another 0.4% this morning to USD 79.9/b. It is hard to track and assign exactly what from Donald Trump’s announcements yesterday which was impacting crude oil prices in different ways. But crude oil was already ripe for a correction lower as it recently went into strongly overbought territory. So, Brent would probably have sold off a bit anyhow, even without any announcements from Trump.

Extending the life of US oil and gas. The Brent 5-year contract rose yesterday. For sure he wants to promote and extend the life of US oil and gas.  Longer dated Brent prices (5-yr) rose 0.5% yesterday to USD 68.77/b. Maybe in a reflection of that.

Lifting the freeze on LNG exports will be good for US gas producers and global consumers in five years. Trumps lifting of Bidens freeze on LNG exports will is positive for global nat gas consumers which may get lower prices, but negative for US consumers which likely will get higher prices. Best of all is it for US nat gas producers which will get an outlet for their nat gas into the international market. They will produce more and get higher prices both domestically and internationally. But it takes time to build LNG export terminals. So immediate effect on markets and prices. But one thing that is clear is that Donald Trump by this takes the side of rich US nat gas producers and not the average man in the street in the US which will have to pay higher nat gas prices down the road.

Removing restrictions on federal land and see will likely not boost US production. But maybe extend it. Donald Trump will likely remove restrictions on leasing of federal land and waters for the purpose of oil and gas exploration and production. But this process will likely take time and then yet more time before new production appears. It will likely extend the life of the US fossil industry rather than to boost production to higher levels. If that is, if the president coming after Trump doesn’t reverse it again.

Donald to fill US Strategic Reserves to the brim. But they are already filled at maximum rate. Donald Trump wants to refill the US Strategic Petroleum Reserves (SPR) to the brim. Currently standing at 394 mb. With a capacity of around 700 mb it means that another 300 mb can be stored there. But Donald Trump’s order will likely not change anything. Biden was already refilling US SPR at its maximum rate of 3 mb per month. The discharge rate from SPR is probably around 1 mb/d, but the refilling capacity rate is much, much lower. One probably never imagined that refilling quickly would be important. The solution would be to rework the pumping stations going to the SPR facilities. 

New sanctions towards Iran and Venezuela in the cards but will likely be part of a total strategic puzzle involving Russia/Ukraine war, Biden-sanctions on Russia and new sanctions on Iran and Venezuela. All balanced to end the Russia/Ukraine war, improve the relationship between Putin and Trump, keep the oil price from rallying while making room for more oil exports of US crude oil into the global market. Though Donald Trump looks set to also want to stay close to Muhammed Bin Salman of Saudi Arabia. So, allowing more oil to flow from both Russia, Saudi Arabia and the US while also keeping the oil price above USD 80/b should make everyone happy including the US oil and gas sector. Though Iran and Venezuela may not be so happy. Trumps key advisers are looking at a big sanctions package to hit Iran’s oil industry which could possibly curb Iranian oil exports by up to 1 mb/d. Donald Trump is also out saying that the US probably will stop buying oil from Venezuela. Though US refineries really do want that type of oil to run their refineries. 

Big money and USD 80/b or higher. Donald Trump holding hands with US oil industry, Putin and Muhammed Bin Salman. They all want to produce more if possible. But more importantly they all want an oil price of USD 80/b or higher. Big money and politics will probably talk louder than the average man in the street who want a lower oil price. And when it comes to it, a price of USD 80/b isn’t much to complain about given that the 20-year average nominal Brent crude oil price is USD 77/b, and the inflation adjusted price is USD 102/b.

Easing a bit towards the 80-line this morning following recent strong gains. Brent crude gained another 1.3% last week with a close of USD 80.79/b. It reached a high of USD 82.63/b last Wednesday. This morning it is inching down 0.3% to USD 80.5/b.

Donald needs a higher oil price to get another US shale oil production boom. Donald Trump declaring an energy emergency with promises of opening up federal land for oil exploration +++, may sound alarmingly bearish for oil. But the days when US oil production (shale) was booming at an average oil price of USD 58/b (2015-19) are behind us. Brent has averaged USD 81/b through 2023 and 2024, and US shale oil is now moving towards zero growth in 2026.

Donald Trump (and the US oil industry) needs a higher oil price to drive US oil production significantly higher over the next 4 years. The US oil industry also needs to know that there will be a sustainable need for higher US oil production. So, someone else in the oil market needs to exit to make room for more oil from the US. Iran and/or Venezuela will be the likely targets for Donald Trump in that respect. But it is still not obvious that the US oil industry will go for another period of strong oil supply growth with natural doubts over how lasting a possible outage from Iran and/or Venezuela would be.

Strong rise in speculative positions increases the risks for pullbacks below the 80-line. The new sanctions on Russia have pushed crude oil higher over the past weeks, but speculators have also helped to drive flat prices higher as well as driving the front-end of the crude curves into steeper backwardation. Speculators typically buy the front-end of the crude curves and thus tend to bend the forward curves into steeper backwardation whey they buy. So, curve shapes are not fully objective measures of tightness. Net-long speculative positions (Brent +WTI) rose 52.4 mb over the week to last Tuesday. In total they are up 415 mb to 577 mb versus the low point in the autumn of 162 mb in early September.

Brent crude has now technically pulled back from overbought with RSI at 65.2 and back below the 70-line. But washing out some long-specs with Brent trading sub-80 for a little while is probably in the cards still.

But this does not look like just a speculatively driven frothy flash-in-the-pan. But do not forget that time-spreads have been tightening since early December and flat prices have risen higher along with them. Thus, this is not just a speculatively driven frothy flash-in-the-pan. The new sanctions on Russia are also having a tightening effect on the market both on Crude, LNG and middle distillates. Add also in that Donald Trump needs a higher oil price to drive US oil production higher. So even if we find it likely that Brent crude will make a pullback below the 80-line, it does not mean that this is the end of the gains.

Net long speculative positions in Brent + WTI in million barrels

52-week ranking of speculative positions in Brent + WTI and 52-week ranking of 1-7mth Brent time-spread.

Brent crude 1mth vs. Dubai 1-3mth time spread. The Dubai time-spread is probably less impacted by speculative positions and thus a better reflection of actual physical conditions. This is rising yet a little more this morning.