No doubt the proof will be very different to the pudding (or is that padding?) when the finer details of a deal struck between Washington and New Delhi was announced overnight. At present, markets have need to react in headline which comes mainly via ‘Truth Social’ on how the US will cut the punitive tariff on India from 50 percent to 18 percent in exchange for India’s replacing oil imports from the those of Russia with US and its controlled Venezuelan ones. No doubt it is a development to be scrutinised when the deal is realised, but for now the first-look reaction must be on the huge variation in the amount Venezuela can produce at present and if it can match the incredible price discounts sanctioned oil is obliged to suffer from buyers. Still, a fawning Indian Prime Minister Narendra Modi deployed all the thankful obsequiousness the US President expects which politically is a price well paid after Indian exports to the US plummeted in 2025 and its economy saw investors leaving in droves. 

The wider markets are always pleased when trade strife is eased and after the last few days also welcomes a return to US Dollar debasement rather than that of precious metals. The Reserve Bank of Australia raised rates by 25-basis points as an antidote to stubborn inflation. But by doing so also pushed the Aussie Dollar higher by 1 percent against its American currency pairing which in consequence aided a downturn in the US Dollar Index, even though the AUD does not make up part of its currency basket. The sentiment pulled the lever of rotation and Gold has now put in a $300 rally to $4,900/oz from the lows seen at this time yesterday morning. With a landslide the likely outcome for Prime Minister Sanae Takaichi’s called election this weekend, her anticipated dovish economics has pushed Japan’s Nikkei on by 700 points or 1.3 percent and therefore the chill blowing through markets yesterday has found reprieve.

Amuse-bulls

Yesterday’s extraordinary (if ‘extraordinary’ has not yet lost its value as overused hyperbole in Trumpian times) climb down in risk premium for oil prices might be welcomed by those who proselytise on nearby times of glut in supply. Certainly, there is a parallel to be drawn from last year’s beginning of events and the ultimate dilution of importance attached to the Gaza war. If indeed the ramping up of much advertised military pressure by Washington on Tehran proves to be another successful feint, such a view of freely flowing Middle Eastern oil will bear gain for recently embattled shorts, particularly as the bite of any wintry effect begins to wane in the Northern Hemisphere. 

It is slightly disingenuous to quote the multiple percentage falls in Natural Gas prices because they are grossly skewed by the month change. But allowing for backwardation at expiry, winter price pressure is off for at least the moment. Given Gas prices have been enabling Heating Oil prices to reach levels not seen for nearly two years, Gas price demise is also the middle of the barrel’s loss. The warnings of too much oil once again find great population. If one were to quietly ask OPEC, and by chance they answered honestly, the cartel might just admit such resumption of oversupply thinking lies behind the weekend’s decision in not to bring back any more oil supply since shuttered because of deliberate production cuts. 

For those looking for a similar temporal save in oil prices from an approaching Gasoline season, recent news suggests they might be undone. Weighing into premature ‘driving season’ thoughts are how Russia has lifted its export ban on Gasoline, and the motor fuel’s crumbling refiner margin in Asia which, according to Reuters, is at a one-year low, with India, South Korea, China and Japan all fighting for customers for their processed product. As for feedstock considerations, the apparent fixing of the individual but linked problems of Tengiz production and CPC pipeline loadings can no longer be relied on to tighten sweeter crudes. Unless of course, Ukraine decides to make another meddlesome drone intervention.

The threat to Kazakh and Russian oil flows from Ukraine incursions is the start of the counter argument of why we do not think an overriding fire-and-forget bearish attitude is a long-term winner. Gone are the days of oil trading when a strategic play can be entered into and the rest of the year being spent asleep at the wheel. It is such an uncomfortable world that any undertaking of bearish, or even bullish, positional risk exposures cannot be married to, they have to be at least tweaked or divorced from more times than Zsa Zsa Gabor and Elizabeth Taylor ended their nuptials. Can it really be presumed that the winter is already over, or oil pipelines are immune to attack or weather, or if the alarming repercussions of a US/Iran war need no longer be pondered in the still of the night? We could still find ourselves enslaved to a problematic Gasoline season and if extreme cold can freeze us into demanding Heating Oil, then extreme heat can broil refineries into shutdown during the summer.

The pandemic, Ukraine war and Red Sea closures have broken oil market communications. Sweet or sour crude and their derivatives never seem to be in the right place anymore and the layers of intrigue caused by tariffs and trade turmoil may signal a dip in demand, but they also contribute to the nightmare of oil mobility and the continual cost influence of freight at present. Geographical pockets of extreme demand in energy will now become normal and since when in the last two years or so can a supply/balance forecast be relied upon? Given the secrecy of China’s energy consumption and storage, of the black arts involved in Beijing and New Delhi back-dooring Russian and Iranian oils into their interiors, and even with the overnight deal on India replacing Russian imports with that of US backed Venezuelan crude, how on earth can anyone calculate sanctioned oil into their way too confidently said ‘balance'.

Geopolitics of our age are tidal, daily, not seasonal. They will also rarely be bearish per se. If they are it will be a fix of an existing confrontation rather than be say hands across the Rockies and let’s give Alberta Sands some of that good old Permian Basin attention for the benefit of the both of us. The market is weighed to the downside; it is the default drift. With such potential global supply so highlighted it must be so. But note ‘potential’. Where is the huge overhang? Has it really turned up? We will revisit this again at a later date, because the point being made here is running out of word count. However, with underinvestment in exploration, the disappearing spare capacity, the dawdle into energy transition and the never, ever-ending geopolitical conflicts means that price risk will be to the upside. Making conclusions is foolhardy in our world, for example who knows how brazenly executive Mr Trump will become with his presidential powers if he likely loses the US mid-term elections. It is tempting to us to continue to toy with the idea of a market that blows its price ever higher on one geopolitical consideration after another, but never really truly being defaulted fully back to the price from whence it started.

Overnight Pricing