How oil got to $90 a barrel

SPEAKER_1 (0:01)

There is a quality bias that has overtaken a lot of the desires for investors. And so the reason we suspect that's happening is there's a fear that, you know, given this historical rate-hiking cycle around the world, there's a lot of uncertainty, obviously.

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Ethan Wu (0:36)

Pushkin.

While we were all busy gawking at Nvidia and where interest rates are going, oil, it's been creeping up. It hit $90 the other week. It's down a little bit today, but it's still high. It's been up about 15% this year. This is a big deal. Oil goes into everything we make, everything we use. It's a key input into the global economy. Today on the show, why oil is at 90 and why you should care.

This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I am reporter Ethan Wu. Here in the New York studio, joined from London by FT Markets columnist, Katie Martin.

Katie Martin (1:16)

Hey, Ethan, how's it going?

Ethan Wu (1:18)

Hey, it's going good. I mean, I don't want to take away from the episode. We're two stock people talking about oil, but it's important, right? Like this is something that matters.

Katie Martin (1:27)

I mean, I've been paying attention to oil. As you say, it's had like a hell of a run so far this year.

So one tiny kind of thing here is that like, so the Brent oil price, which is effectively the European benchmark, that hit $90 a barrel. The WTI US benchmark, without meaning to sound like a kind of boring nerd, that hasn't quite got to the same level, but the two generally move in lockstep and they've moved by very, very similar degrees. So, I mean, we are definitely sitting at the tail end of like really quite an impressive run higher in oil prices.

Ethan Wu (2:02)

The oil price increase has been a surprise, right? Like there are some environments where there's a lot of predictions and then oil ends up going up, but this time it took people a bit off guard. So, one way to make that point, right, is you look at the forecast put out by the International Energy Agency, the IEA. This is like the kind of, Katie, how would you describe them? Like the foremost authority on the oil payments?

Katie Martin (2:24)

They should know what they're talking about. They know one end of the oil market from the other for sure.

Ethan Wu (2:28)

Yeah, they got energy in the name. All right, so they know what they're talking about. In January of this year, they were projecting a quote unquote substantial surplus of oil supply. In March, they changed their forecast to a slight deficit, right? So that's a big change going from, we're going to have too much oil to we're not going to have enough oil in the span of two months, right? That forecast from the leading global energy authority changed.

Why is that, right? So we had a look at that recently in the Unhedged newsletter, and I think it comes down to three general factors.

Demand, supply, and geopolitics.

And I think the demand story is the most intuitive. And in some ways, we've been talking about it on the show, Katie, just things are going better than I think a lot of people thought that they would. And it's not just in the US.

Katie Martin (3:14)

No, I mean, you just cannot hold the US economy down, seemingly. And that's obviously a massive source of supply for oil, as you say.

Everyone's been beating up on China for the longest time, but there are potentially signs that that economy is possibly bottoming out around now and that things have stopped getting more and more terrible and that might be a meaningful source of demand picking back up again. Investors are not super keen to get their fingers burnt on China all over again, but the economic impact of it being a big source of potential oil demand is not to be sniffed at.

Ethan Wu (3:47)

Yeah, I mean, we just got first quarter GDP numbers a few days ago from China. They beat expectations by, you know, not a ton, but like a little bit, 5.3% growth that's above the Communist Party's growth target. Now, there are ways to like shit on the report, and you know, it's not a clean number, but it does show that, especially in the manufacturing sector of China's economy, things are doing a little better than they were last year.