Apr 23, 2019

Oil traders fear déjà vu in this year's big run

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

U.S. coronavirus updates: Death toll nears 11,000

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

Recorded deaths from the novel coronavirus surpassed 10,900 in the U.S. early Tuesday, per Johns Hopkins data. More than 1,000 people in the U.S. have died of coronavirus-related conditions each day since April 1.

Why it matters: U.S. Surgeon General Jerome Adams said on Sunday this week will be "the hardest and saddest week of most Americans' lives" — calling it our "our Pearl Harbor, our 9/11 moment."

Go deeperArrowUpdated 47 mins ago - Health

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 11:30 p.m. ET: 1,347,803 — Total deaths: 74,807 — Total recoveries: 277,402Map.
  2. U.S.: Total confirmed cases as of 11:30 p.m. ET: 368,196 — Total deaths: 10,986 — Total recoveries: 19,828Map.
  3. Trump administration latest: President Trump's economic adviser Peter Navarro warned White House colleagues in late January the coronavirus could take over half a million American lives and cost close to $6 trillion, memos obtained by Axios show.
  4. 2020 update: Wisconsin Supreme Court blocks governor's attempt to delay in-person primary voting delayed until June.
  5. States latest: West Coast states send ventilators to New York and other states with more immediate need — Data suggest coronavirus curve may be flattening in New York, Gov. Andrew Cuomo said.
  6. World update: U.K. Prime Minister Boris Johnson moved to intensive care as coronavirus symptoms worsen.
  7. Stocks latest: The S&P 500 closed up 7% on Monday, while the Dow rose more than 1,500 points.
  8. What should I do? Pets, moving and personal health. Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  9. Other resources: CDC on how to avoid the virus, what to do if you get it.

Subscribe to Mike Allen's Axios AM to follow our coronavirus coverage each morning from your inbox.

Docs: Navarro memos warning mass death circulated West Wing in January

Image from a memo to President Trump

In late January, President Trump's economic adviser Peter Navarro warned his White House colleagues the novel coronavirus could take more than half a million American lives and cost close to $6 trillion, according to memos obtained by Axios.

  • By late February, Navarro was even more alarmed, and he warned his colleagues, in another memo, that up to two million Americans could die of the virus.

Driving the news: Navarro's grim estimates are set out in two memos — one dated Jan. 29 and addressed to the National Security Council, the other dated Feb. 23 and addressed to the president. The NSC circulated both memos around the White House and multiple agencies.

Go deeperArrow2 hours ago - Health