The GERM Report

-IEA sees demand coming in the second half of next year.

-U.S. crude oil exports to Asian move lower.

Crude oil prices returned to rally mode, with Brent crude oil once again passing the $50 mark in Tuesday trading. That comes amid expectations from the IEA of prolonged supply-side pressures. Manufacturing and industrial activity in the United States, meanwhile, showed resilience in November, lending support to investor optimism. Expectations of another build in U.S. petroleum products could be overshadowed by drains in commercial crude oil inventories. On geopolitical risk, we see U.S. sanctions on a Bahrain-based group as evidence of the questionable claims surrounding the Arab Pivot.

Crude oil prices were in the black during the Tuesday session, with U.S. crude oil prices testing new highs near the $48 per barrel mark. The price for Brent crude oil, the global benchmark, was up 0.82% as of 2:55 p.m. ET to trade at $50.70 per barrel.

Tamas Varga, an analyst at London oil broker PVM, said in a note emailed to The GERM Report that “there is a growing agreement between forecasting agencies that the improvement in global oil demand might not start at the beginning of next year but in the (second half of 2021).” His sentiment was backed by the International Energy Agency, which on Tuesday lowered its demand forecast for 2020 by a modest 50,000 bpd and by 170,000 bpd for 2021. On products, the IEA said gasoline consumption would return to “normal” by next year, though demand for jet fuel will account for the vast majority of the shortfall in consumption next year, relative to 2019.

A forecast from S&P Global Platts shows petroleum product demand has yet to recover from the pandemic. Even with holiday and vaccine shipments, Platts expects U.S. distillate inventories will show a 1.1 million barrel increase last week. For consumers, road traffic showed a modest increase for the week ending Dec. 11, though gasoline stockpiles are still more than 5% above the five-year average. Crude oil inventories are likely to show a 1.9 million barrel draw, though those stocks are 11% above the five-year average. On U.S. exports in an arguably weak economy, levels were strong in Europe, but come in at their lowest level in six weeks for Asian deliveries. That contrasts somewhat with earlier optimism over the Chinese appetite for crude oil in the fourth quarter.

In the geopolitical arena, the U.S. government on Tuesday designated the Bahrain-based Saraya al-Mukhtar, or the Mukhtar Brigades, as a terrorist organization. U.S. Secretary of State Mike Pompeo said the relatively inactive Shiite group has plotted against U.S. officials in Bahrain and posed a “significant risk” to national security and foreign policy interests because of its alleged ties with Iran. That could upset a delicate balancing act in the Middle East as the Trump administration in its waning days has sought to pull Sunni countries in the region to Israel’s side. The Shiite majority in Bahrain staged an uprising against the ruling Sunni minority nearly a decade ago. With the demarcation between Sunni and Shiite states in the Middle East clearing up with the U.S. push for Israel, we wonder if this is set up for future fighting that could jeopardize the key shipping lanes in the Persian Gulf.