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Oil led the Commodities Check-in on this week’s HotCopper Wire, where Isaac McIntyre and Jonathon Davidson dug into a Brent crude market that’s suddenly falling not on a shock to supply, but the prospect of too much.
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Oil’s had a rough week. Brent crude sank back below US$80 a barrel midweek, hitting a three-month low, as a possible U.S.-Iran peace pact had traders racing to price in a wave of fresh supply. The deal would reopen the Strait of Hormuz, the chokepoint whose closure has kept a “fat risk premium” baked into crude for months.
McIntyre noted how fast the mood flipped: The same Strait that drained inventories on the way up is now the reason barrels are tipped to come flooding back.
How drained? McIntyre pointed to U.S. emergency crude reserves as the poster child; it’s been sitting at their lowest level since as far back as 1983. So there’s no shortage of room for oil to flow once the taps are back on.
The catch, as Davidson was quick to flag, is that it won’t happen overnight.
“We can’t just snap our fingers and go back to pre-crisis oil flows,” Davidson said, with Brent slipping into the high US$70s for the first time in months.
“The whole move is contingent on Hormuz traffic actually flowing unimpeded again — and getting a system that complex, run by millions of moving parts across the global economy, back up to speed takes time. Which is the tell: it’s oil futures doing the dropping, because the market is pricing in relief it hasn’t received yet. And as anyone who’s traded the stuff knows, energy markets are nothing if not fickle.”
That brought the pair to the more interesting question – what’s really driving the rush to peace? One theory doing the rounds is it’s less about diplomacy and more about America’s own near-empty tank, with the EIA flagging overnight that U.S. commercial crude inventories have slumped to 40-year lows.
Davidson wasn’t fully buying it. Sure, Trump “loves history” and probably views the world through an oil-centric, old-school lens. But the U.S. still sits on a hefty strategic reserve on top of those depleted commercial stocks, and the actual drawdown since the conflict began is fairly modest in the scheme of things. By Davidson’s maths, if America stopped pumping altogether, its reserves would buy it all of four days, so the cushion isn’t the fortress some are making it out to be, either way.
His verdict: The strategic petroleum reserve probably isn’t the smoking gun behind Trump’s thinking, and the tidy “America’s running dry” narrative may be getting inflated by people who’d just like a simple story.
For now, it all hinges on the coming weekend. The real question is whether the deal actually gets signed – ink on the paper, not just headlines.
You can listen to the full HotCopper Wire episode below.
You can also find the POD to listen to and download over on Spotify.
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Disclaimer, as spoken by Isaac McIntyre in the HotCopper Wire episode: Any information or advice in this HotCopper podcast recording is intended for education and entertainment purposes. Any advice is general in nature and does not take into consideration your objectives, financial situation or needs. Before acting on general advice, you should consider whether it is relevant to your needs and read the relevant Product Disclosure Statement. And if you are unsure, please speak to a financial professional.
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