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Illustration: Aïda Amer/Axios

Oil prices have skyrocketed so far this year, but traders aren't filling their swimming pools with gold coins just yet.

Driving the news: Crude prices rose 3% yesterday after the State Department said it would not extend waivers allowing nations to bypass U.S. sanctions and import oil from Iran. International standard Brent crude prices have risen upwards of 30% so far this year and U.S. WTI prices close to 40%.

Context: This year's rally feels eerily similar to last year when oil prices spiked above $85 a barrel in October, only to crater near $50 in December. Traders were caught on the wrong side of the unwind, with bets that prices would rise outnumbering contracts betting it would fall by 9 to 1.

  • "This is definitely not a crowded trade. ... Everybody still remembers getting burned in Q4," Michael Tran, RBC Capital Markets managing director of global energy strategy told the Financial Post.
  • Tran said the number of long oil contracts currently outnumber shorts by just 4 to 1.

The big picture: The problem is that oil prices aren't rising because the economy is improving and there's increasing demand, Jason Trennert, chairman of Strategas Research, said in an interview with CNBC on Monday. They're rising because of politics. That's not a recipe for a long-term run.

  • Barclays' commodities team also expressed doubts about a lasting move higher. "A sustained rally in oil prices would remain subject to structural limits," analysts said in a note to clients. "We do not expect a further reduction in Iranian supplies in and itself to have a material effect on oil prices over the longer term."
  • Goldman Sachs' analysts note they are keeping their price target unchanged because of expectation for "better supplied markets next year and the still high uncertainties" surrounding production.

Yes, but: Much of the 2018 downturn in oil prices came because the U.S. instituted the waivers, and the Trump administration is showing little appetite to keep them in place. And with Venezuela's oil production at historic lows, 2 of the world's major producers are on the sidelines.

The bottom line: For a sustained rally in oil prices, demand will need to pick up globally, which will require healthy manufacturing and industrial economies and citizens looking to travel. Whether oil can sustain its surge this year should provide some clarity on the health of the world economy.

Go deeper: Trade wars like Trump's threaten U.S. oil and gas exports

Go deeper

Updated 33 mins ago - Politics & Policy

Inauguration Day dashboard

Screenshot: Fox News

President Trump has delivered a farewell speech and departed Washington for the last time on Air Force One, kicking off the day that will culminate with President-elect Joe Biden taking office.

What's next: The inaugural celebration for young Americans is being livestreamed, starting at 10am.

Updated 49 mins ago - Politics & Policy

Trump departs on final Air Force One flight

President Trump and his family took off on Air Force One at 9 a.m. on Wednesday morning for the final time en route to Florida.

The big picture: Trump's final hours as president were punctuated by his decisions to snub his successor's inauguration and grant pardons to many of his allies who have been swept up in corruption scandals.

Dion Rabouin, author of Markets
2 hours ago - Economy & Business

Janet Yellen said all the right things to reassure the markets

Illustration: Aïda Amer/Axios

Treasury Secretary nominee and former Fed chair Janet Yellen's confirmation hearing before the Senate Finance Committee on Tuesday showed markets just what they can expect from the administration of President-elect Joe Biden: more of what they got under President Trump — at least for now.

What it means: Investors and big companies reaped the benefits of ultralow U.S. interest rates and low taxes for most of Trump's term as well as significant increases in government spending, even before the coronavirus pandemic.

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