The GERM Report

-EIA: It won’t be 2019 again until 2022

-Stein’s Law faces its biggest test; the rally in crude oil

The rally in crude oil prices presents a real test for Stein’s Law, which stipulates that if something cannot go on forever, it will stop. The global benchmark for the price of oil, Brent, is up nearly 10% in a year that saw insurrection in the United States, tighter social restrictions in Europe and a slower-than-expected inoculation campaign against COVID-19. Instead, traders are betting on a post-pandemic world and apparent tightening in the energy markets.

After a brief slip on Monday, the unprecedented market rally continues. The price of crude oil ended in negative territory twice this year and only six times for all of December. As of 2:08 p.m. ET, the global benchmark for the price of oil was up 1.42% to trade at $56.45 per barrel, it’s highest since mid-February.

On Monday, the U.S. Chamber of Commerce found the pace of economic recovery was only a bit lopsided. Of the handful of business leaders it surveyed, the sentiment was almost evenly split, with 51% saying they were doing worse than before the pandemic and 49% saying there were at the very least on equal footing.

“The full reopening of the economy that widespread vaccinations will make possible offers a light at the end of the tunnel, but we will be dealing with the fallout from the pandemic for years to come,” said Neil Bradley, the chamber’s vice president and chief policy officer.

On Tuesday, the Energy Information Administration said its data showed global liquids fuel consumption evaporated by some 9 million barrels per day last year, the biggest annual decline in a generation. Consumption in 2021 will only make a 5.6 million bpd dent in that and recovery might not be realized any time soon.

“Despite EIA’s forecast of growing consumption in 2021, global consumption of petroleum and other liquid fuels does not return to 2019 levels in the forecast until early 2022,” its short-term market forecast read.

Traders may be betting in the more immediate future, then. S&P Global Platts in a note emailed to The GERM Report forecast tighter markets ahead. Total gasoline inventories in the United States for the week ending Jan. 8 are expected to show a 3.2 million build, about half the usual level for this time of year. U.S. drivers traveled more too. Crude oil inventories, meanwhile, are likely to show their fifth straight decline, with expectations of a 3.8 million barrel draw in Wednesday’s report from the EIA.

In geopolitical circles, there are just over two weeks to go before President-elect Joe Biden is sworn in as the 46^th president of the United States and, given last week’s extraordinary events in the nation’s capital, anything can happen. Documents from the Federal Bureau of Investigation show threats exits in all 50 states and in Washington D.C. in the days leading up to the inauguration on Jan. 20. Citing concerns that people could enter state buildings in Michigan carrying concealed weapons, Attorney Gen. Dana Nessel said the state Capitol was “not safe.” We wondered last week if the spike in crude oil prices was a reflection of the political unrest in the United States. If there is a geopolitical risk premium emanating for a divided United States, we expect that to continue well into the Biden presidency.