There are only two possible explanations for the oil market

Oil quickly shook off the worries in equities and the broad risk trade once again today and charged ahead, adding $2.29 to settle at $85.60.

This rout in the Nasdaq and Russell 2000 has barely been a blip in the oil market.

The way I see it there are only two possible explanations:

1) Someone is hoarding oil on worries of a Russia-Ukraine war and associated sanctions in Russia, buying every barrel available

2) The market is exceptionally tight

The first one sounds like a conspiracy theory so it’s easy enough to dismiss. But the second idea is hard to get behind as well, because omicron is undoubtedly cutting into driving and flying demand. I can believe in the idea of a really tight market later this year and beyond when we get back to normal (hopefully) but the speed of this rally and the relentless bid is unnatural.

As for the Ukraine situation, you would think we would be seeing gas prices spike if there was hoarding but that might simply reflect a physical market where there isn’t any to buy.

I just don’t know if we’re going to get an answer, short of Russia demobilizing near the border and that might take awhile.

As for the read-through to FX, at some point the loonie has to start reflecting $85 because it’s nowhere near that now. Of course, some of that is because there’s no multi-billion investments pouring into new Canadian production but it’s a real tailwind for terms of trade and investment will come if oil stays strong. Oil at $100 in a good economy is easily a case for 1.15 in USD/CAD.