The GERM Report

-We’ve seen this movie before in markets

-Supply-side pressures help crude. What about demand?

We’ve seen this movie before, but the ending might be a bit different. Crude oil prices are running away, posting highs not seen since before the pandemic. That comes as major economies continue to struggle to get shots into the arms of their constituents enough to turn the tide on the spread of COVID-19. In the US economy, the president said a counteroffer on stimulus from Republican leaders was not enough, something that would normally tank the market. OPEC, however, stole the show by showing it can indeed be a disciplined bunch.

Brent crude oil was up by about 2% as of 3:30 p.m. ET to trade at $57.52 per barrel, the highest level since late February.

It’s been more than a year since crude oil prices were this high. At that point in 2020, the United States had just recorded its first death from complications from a strange new ailment called coronavirus disease 2019. The CARES Act, a $2.2 trillion stimulus package, would not be passed until early March. It would be another month still until U.S. crude oil prices sank into negative territory. We noted on Monday, and we’ll note it again, that the smart people in the room are telling us that at least some of this rally must be attributed to the trend in retail investors, though those Reddit-fueled folks have yet to set their sights on something that matters to everyday consumers (I was dared today to infiltrate the Reddit crowd). Perhaps some of the enthusiasm stems from confidence in the Biden administration to turn the tide, though it’s seemingly business as usual in the United States.

Republican leaders and the party faithful are balking – again – on the size of a federal stimulus bill. The Biden administration was pushing for another trillion-dollar whopper, a whopper backed by Treasury Secretary Janet Yellen who urged lawmakers to go big or go home. But they don’t want to go big, nor do they want to go home. Republicans countered with a $600 billion bill that the Biden administration said was “way too small.” Stimulus news last year drove the market proportionately, though we’ve seen the disconnect grow at least since the waning days of the Trump administration.

From the industry, Exxon Mobil reported a staggering $20.1 billion loss during the fourth quarter, a quarter that saw equities rise seemingly undeterred. Demand is just starting to return to the sector, though it was not enough for the struggling supermajor.

“The past year presented the most challenging market conditions ExxonMobil has ever experienced,” said Darren W. Woods, chairman and chief executive officer.

Anticipating a supply deficit of some 1.5 million barrels per day this year, Swiss investment firm UBS said it expected Brent to hit $63 per barrel in the first half of the year and $65 per barrel in the latter half. The supply-side deficit could reflect the discipline among parties to the OPEC-led curtailment effort. The group more or less did what it said it would, and Saudi Arabia upped the ante by trimming another 1 million bpd from the market. That supports crude oil prices, but does it support demand?