Candid Tariffs and Calendar Spreads: Say Cheese, Oil Market!
I’m a lover, not a fighter. Last week, the US and China agreed to agree some more, once they realized that the ridiculous tariff rates they placed on each other were essentially an unsustainable embargo. Of course, the stock market reacted positively to this news as it reflected the possibility that a completely avoidable trade war wasn’t heading directly for an iceberg at ramming speed. For the week, the S&P 500 advanced +5.3%. The head scratcher in all of this is that the tariff implementation was based on the premise that trade deficits are inherently bad for the USA. In order to dissect this idea, it’s important to look at the other side of the equation. If one country has a trade deficit, another country must have a trade surplus. Trade surpluses are a signal that an economy is producing more than it consumes, which might mean that an economy is misreading the spending preferences of its populace. If a country’s economic philosophy is based on policies turned towards boosting exports instead of goading domestic consumption, deflating one’s own currency makes things ultimately more expensive for its own citizens. Spending discipline can be influenced by pricing and protectionist borders. The free market controls pricing, whereas the government can influence the protectionism via tariffs. However, the consumer ultimately has the final say when it comes to spending discipline and discretion on what and how much they want to buy. So maybe, at the end of the day, it’s the country that has the trade deficit that has the upper hand. Hmmm.
Oil prices minted their second straight weekly gain based on the opening of the kimono between the US and China. However, even more good news on the world hostility scene might chase oil prices downward again. Reports on progress of Iran nuke discussions could lead to an increase of 400,000 barrels per day of Iranian oil hitting the global market with relief of sanctions on the country. That could make things pretty sloppy on the supply side. Brent crude ended the week at $65.41 per barrel, while WTI closed at $62.49.
When it’s least expected – you’re elected, you’re the star today, SMILE! You’re on Candid Camera! With our hocus-pocus – you’re in focus, it’s your lucky day, SMILE! You’re on Candid Camera! When OPEC+ announced it will once again start unwinding of production cuts, the market responded with the rarely seen “Smile formation” in the futures calendar spread curve. While the announcement did nothing to quell the influence that headlines have on front months, traders certainly responded to this information where it pertains to what’s going to happen next year. According to Morgan Stanley, the last time we saw the smile was in February 2020 just before oil prices really tanked. Other than that instance, the smile is very unusual. Presently the WTI curve is backwardated for the remainder of 2025…but looky looky what is happening in 2026! Yup, there is a contango formation from January out into the sunny months of summertime. So what the market is telling you is that there is tight supply now (there really isn’t but at least that’s the way the market is trading) but next year we will be swimming in oil. Indeed, there is significant Guyana and Brazilian production planned for 2026 and 2027. All the storage terminals raise the roof and say “Yay!”. Using your imagination, backwardation running into contango looks like a smiley face…and that would certainly make petroleum terminals say “have a nice day!”. Indeed, The Tank Tiger has seen a marked increase in inquiries for crude storage, while it’s still cheap. Why get it now? Storing air for a few months can make a lot of sense if you can stake a claim to this storage when the contango eventually kicks in and storage will get very expensive, if available at all. The Tank Tiger can show you millions of barrels of available crude storage right now. We are here to pick up the phone, so Smile and dial!
It was great seeing so many familiar faces at the Eastern Energy Expo hospitality suites yesterday. The big news is that we’re pleased to let you know that Litasco will be resurrecting and hosting their famous Jersey Shore beach party on July 17, 2025. It’s sure to be an amazing event! While we can’t be certain if Snookie, Pauly D and the Situation will make an appearance, we need to tell you that the deadline to register is May 31, 2025. If you’d like an invitation, Dmitri has asked us to forward one to you. So let us know and we will send you the link to register right away. We’re happy to do so and would love to see you with toes in the sand and cocktails in hand.
