REBOUND: Brent crude prices have risen over $80/bbl., giving some relief to hard-pressed oil stocks (XLF). But Brent is still down 5% the past year and is 15% off recent highs. This gives a small but welcome’ ‘tax cut’ to an easing US consumer where gas prices loom large. The current oil rally may be a false-dawn now, but is better later. Focused on China’s ability to boost its economy, firmer demand as rate cuts start in US and Europe, and that this weakens the dollar. Consumers are in the driving seat for now, but change may be coming. @OilWorldWide.
OIL: Brent crude has finally moved over $80/bbl. With rising red sea and geopolitical tensions. Which we think are different from the pandemic price spikes. And the US is now refilling its strategic reserve. Buying 3 million bbl. in December, after its biggest drawdown in history. But Brent is still held back by China’s struggling economy, which is historically the biggest oil importer. The stronger US dollar, that makes it pricier for most in local currency terms. And US oil production records of over 13mbpd, alongside ramp ups from Brazil to Guyana. This has forced OPEC+ to deepen supply cuts, and make increasingly voluntary as internal strains build.
GASOLINE: Contained Brent oil prices and a halving of refining crack spreads have seen US gasoline prices fall to an average $3.1/gallon. This is a tailwind to lower inflation and been a ‘tax cut’ to the consumer for six months now. A $50 billion saving on an annualised basis (see chart) vs prices a year ago. This is twice Macy’s (M) annual sales for example, but only 0.7% of the $7 trillion of US retail sales. But still welcome with the economy slowing. And politically, given gas prices correlation with presidential popularity. This outsized importance is driven by the US’s unique combination of low fuel taxes, high average mileage, and relatively low fuel efficiency.
All data, figures & charts are valid as of 25/01/2024.