The Perennial 'Looming Risk' Keeps the Oil Pump Primed
THE CLAIM: Bloomberg reports that Macquarie's strategists are advising against shorting oil due to 'looming risk.' This is presented as sound financial advice, a sober assessment of geopolitical realities impacting energy prices. THE EVIDENCE: Interestingly, the 'looming risk' is rarely specified beyond general geopolitical instability. One might wonder why, after a decade of fluctuating yet
largely stable supply despite numerous regional conflicts, these 'risks' consistently materialize precisely when market sentiment might otherwise nudge prices downwards. Oil prices have, in fact, been remarkably resilient, often decoupled from actual supply disruptions. For instance, despite the OPEC production cuts implemented in late 2022, global oil supply still managed to increase by an
estimated 1.83 million barrels per day in 2023, largely due to non-OPEC+ producers like the US, Canada, and Brazil ( IEA, 2023 ). This suggests that market narratives often precede, rather than merely reflect, price movements. THE CONTRADICTIONS: The advice against shorting oil is a recurring motif. We heard similar warnings in the lead-up to the 2008 financial crisis, when prices soared to
unprecedented levels, supposedly due to insatiable demand and constrained supply – before crashing spectacularly as the global economy went into freefall. The 'looming risk' narrative serves to anchor expectations for higher prices, creating a psychological floor. It conveniently overlooks the persistent oversupply capacity globally, which, by pure economic logic, should depress prices. For