The Oil Market’s Real Weakness Is Supply, Not Demand
Sanctioned producers are finding ways to get their crude to market.
Purveyors of conventional wisdom would have you believe that the 25% drop in oil prices since late last year was due to softening demand in slowing economies. They — and you — would be wrong. The real problem is too much supply.
Paradoxically, almost all the unanticipated production is coming from OPEC+ countries that are under Western sanctions: Russia, Iran and, to a lesser extent, Venezuela. Put simply, the black market for oil is booming. If one has the appetite – and the stomach – to buy crude from Moscow, Caracas or Tehran, the barrels are there. Better yet, they’re available at a discount.
For instance, Iranian production hit a four-year high last month, up nearly 50% from mid-2020, just as Tehran accelerates its nuclear program and intensifies a crackdown on domestic opposition. Much of that oil is ending up in China under different guises, often rebranded as originating in Malaysia, traders tell me.