The Daily Dose; UBS gives oil prices a shot in the arm

-Risk premium apparent from U.S. political violence

-UBS sees tailwinds from Saudi production restraint

Crude oil prices edged slightly higher in Thursday trading, buoyed tacitly by the risk premium from U.S. political unrest. Markets in general largely shrugged off the violence, though some of the support came from a slight dip in U.S. unemployment. On the fundamentals, analysts at UBS said Brent crude oil could hit $63 per barrel by the second half of the year, but warned that too hot, too soon could invite supply-side pressures.

Markets continued their rally on Thursday, with the tech-heavy Nasdaq jumping some 2% by mid-day. That’s despite earlier concerns that a Democratic sweep in the United States would usher in tighter regulation and pressures on big tech. Movement in the energy market was more subdued, however. Brent crude oil was up just 0.2% as of 2 p.m. ET to trade at $54.42 per barrel.

Democrats and a handful of Republicans on Thursday said they were considering invoking the 25th Amendment to remove President Donald Trump from office against his will. That would deem Trump unable to uphold the duties of office. Others called for swift impeachment following his tacit support for those who stormed the Capitol building on Wednesday, the first time the building had been breached since British forces did so some 200 years ago. In a video message on Wednesday, Trump called on his supporters to give up the siege, but ended his statement with a note of praise, saying “we love you, you’re very special.”

With less than two weeks to go before Joe Biden is sworn in as the 46th president of the United States, it’s unlikely that the wheels of bureaucracy on Washington D.C. would move fast enough for impeachment or invocation of the 25th amendment. Biden, despite his strong rhetoric, remains relatively powerless, however, leaving Trump with another 13 days in office. Movement in crude oil prices therefore could be seen as a reflection of risk premium. Should almost any other country, democratic or otherwise, see demonstrators break through security forces to occupy a federal building at the behest of a head of state, there would be international calls for restraint at least and intervention at most.

In more technical matters, analysts at Swiss investment bank UBS said in a note emailed to The GERM Report that they expected crude oil prices to pass the $60 per barrel threshold by the second half of the year. Pointing to a Saudi decision to trim some 1 million barrels per day from production, analysts said the kingdom showed its willingness to defend prices and keep the market in check.

“However, the Saudi cut may prove problematic and could lead to oil production outside of OPEC+ bouncing back too quickly, leading to possible oil-price volatility in 2022,” the wrote. “It may also weaken production compliance within OPEC+ (i.e. higher production), as just one solitary swing producer will carry the cut burden.”

Despite a surge in crude oil prices and higher rig counts in North America, the U.S. Energy Information expects a slight decline in shale oil production in January.


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