Two weeks after Saudi Arabia said it was targeting $80/bbl oil, this morning Riyadh got its wishes early when Brent hit the Saudi target, jumping as much as 1% to $80.18, following the latest drop in U.S. crude inventories and as traders continued to fret about the consequences of renewed sanctions on Iran.

This was the highest price since November 2014.

Today’s jump followed a reported from Goldman titled simply “The case for commodities strengthens ” according to which America’s surging shale output won’t be able to replace the potential drop in Iranian oil shipments after the U.S. reimposed sanctions on OPEC’s third-largest producer.

US shale cannot solve the current oil supply problems. Even if only 200-300 kb/d of Iran exports are at risk by year-end, OPEC is not likely to preempt this loss, only react to it. Further, any response will reduce spare capacity in an increasingly tighter market. The erosion in Venezuela and Angola oil output is accelerating at the same time ex-US growth is stalling. Only the US has seen supply surprises, but is facing growing pains with filled pipeline capacity, constraining US growth into 2019.

Goldman also noted that physical markets continued to ignore growth concerns – just yesterday the IEA warned that the surge in prices will kill demand – rising rates and USD.

Only financial markets care, which is why only gold has traded substantially lower with the risk-off sentiment. Growth concerns will likely prove temporary, realized demand remains robust and OPEC has never been able to catch late-cycle demand growth to replenish inventories before a recession occurs. And even if growth were to decelerate further, it would take global GDP growth collapsing to 2.5% yoy to simply balance the oil market! We recommend not ‘riding this one out.’

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