“I don’t think anybody dares to short the market when Saudi is like this,” - OCBC economist Howie Lee

CRUDE.

• Brent is >$60/bbl

• WTI is >$58/bbl

The oil markets have started off the year strong, riding the waves of bullish headlines including:

• China demand

• Shell’s North Sea raid

• Saudi’s restraint

Looking closer at these headlines, we’ve found that the stories are nuanced…

re/China:

“BBG talking about the 127 VLCC's heading to China. But many of these are the cargoes that were agreed and purchased in November when there was a surge after quotas. That is the past. the present shows weakening demand as differentials are following and many cargoes unsold” - @Big_Orrin

China’s demand for oil & oil products remains strong; however, the concern is that they have already stocked up:

“… analysts S&P Global Platts spoke to expecting a consumption growth of 3.5%-4.5% year on year, but imports of crude oil may not witness similar growth as the country grapples with bloated inventories” - S&P Global Platts

re/Shell:

“The North Sea oil market has flipped, with the sellers dominating again after Shell appeared to take a step back. The Brent CFD curve has also flipped, with 1st week in cotango to later weeks. Worse, has also plunged, as Rosneft offers more cargoes” - @JavierBlas

&

“Said this was likely to be shell squeezing the 2H feb North Sea market. Likely they are selling their big winning paper position which is causing contango. Likely to start reselling their cargoes soon” - @Big_Orrin

What appeared to be recent strong North Sea buying may have been Shell playing a game of sorts (which they seem to have won) -

re/Saudi:

Putting China & the rest aside, we think this is the only thing that (really) matters:

“Saudi Arabia pledged extra supply cuts in February & March following reductions by other members of the OPEC & its allies” - Stephanie Kelly, Reuters

As long as this cooperation remains, oil prices won’t crash.

Strangely, Covid & the Navalny situation in Russia may have helped oil prices:

• Russia broke up the group last year

• They need strength at home to do it again

• Covid & Navalny have lowered Putin’s approval rating

Putin’s approval is still relatively high compared to his peers (despite being low for him).

However, Putin tracks & polls opinions.

We *don’t* think that crashing oil prices would be popular, right now.

Therefore, we think *that* - and Saudi’s restraint - will hold up the market -

OTHER NEWS.

• Mubadala posts the highest bid for Petrobras refinery

• Qatar’s LNG expansion moves forward as expected

• Oil Majors win UK Wind Auction

• Hedge funds are now long oil

• SPAC Economics

That’s it for this week - Congrats to Tampa - for those watching La Liga, this decision is shaping up to be an all-time worst sports management call (reminiscent of Brady leaving the Pats) - catch y’all next Tuesday -