Note from Keith Kohl - Jan 14

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The Fight for $80 Oil
Keith Kohl | Jan 14, 2025
The election is over, so now I guess it’s okay to push energy prices higher.

Under normal circumstances, winter is when we’re supposed to get a little price relief inside the crude markets; a time when demand is seasonally at its lowest point. And yet, we find ourselves today watching Brent contracts tick over $80 per barrel, with WTI prices quickly closing the gap to after climbing 25% higher in just three weeks.

But hey, we talked last month about the tight supply/demand fundamentals in the current market, so is the recent price move really that shocking for us?

Spoiler: It’s not.

We’re t-minus 7 days before things officially turn over in Washington D.C., and now is when things are going to get interesting… and the current administration appears adamant that it won’t go gentle into that good night.

If President Biden’s sudden decision to implement a moratorium on oil and gas lease activities along the east and west coasts, as well as in parts of the Northern Bering Sea in Alaska, was intended to stir things up, then his latest move late last week was simply the cherry on top to throw a wrench in the works for the next administration.

Last Friday, the Biden administration announced its strictest sanctions so far on Russia’s energy sector. These sanctions targeted around 183 oil tankers, along with two major Russian oil companies.

Although these sanctions probably would’ve been much more useful against Russia if enacted before his last week in office, it’s not a coincidence that it’s taken so long to put them in place.

After all, we couldn’t have crude prices spike higher during the summer, when the U.S. election was in full swing, could we? Of course not.

The oil tankers targeted by this round of sanctions account for about one-quarter of Russia’s exports, which comes out to around 1.7 million barrels per day. The real question is what happens next, and whether these sanctions will bite deep enough to make Putin back down.

Unfortunately, that’s not a likely scenario, and here’s why…

Take a look at what happened before when the U.S. and G-7 tried to slap sanctions price caps on Russia’s oil industry. It led to a price floor for crude oil and was largely ignored anyway. There were no consequences for breaking the G-7 price cap; countries like China and India were more than happy to buy up cheap Russian crude at a discount.

But here’s where things get tougher for sanctions to really take hold — India has already said that it doesn’t expect any of its crude shipments will be disrupted until March.

Indian officials will continue allowing Russian oil shipments, which isn’t too surprising. After all, India accounts for 60% of Russian oil exports, and those barrels make up about 36% of India’s total imports.

So we can forget about any immediate impact on these sanctions, except for the jump in futures prices that we’re currently witnessing.

What’ll be more interesting is what happens when President Trump comes into office next Monday. Along with this round of sanctions on Russia, we know for a fact that the Trump administration will crack down hard on both Iran and Venezuela.

This would put even more upward pressure on crude prices over the next few months.

That leaves us with the wild card in this fracas — OPEC.

Even though the group extended its production cuts, the Saudis will be more than willing to add more barrels to the market in order to keep prices stabilized, and they certainly have the spare capacity to do so.

However, President Trump has a different concern he’s going to have to contend with once he moves into the White House, especially if his goal is lower energy prices.

Stay tuned.

Until next time,

Keith Kohl