Episode summary
How to Trade Oil Now
The Markets
· · 15 min · Hosts: Chris Hussey · Guests: Jerome Dortmans
Summary
Jerome Dortmans said oil’s drop from its recent peak reflects a market that has moved from panic to negotiation, with the cease-fire removing part of March’s risk premium. He argued that the price action is still highly binary: if talks fail and the situation re-escalates, crude and refined products could move sharply higher again, especially in the East and in Western refined products heading into summer demand.
If a memorandum is signed and the truce holds, Dortmans expects crude to soften, but not collapse. He said the market could sell off toward $80-85, while supply disruptions, damage to regional refining, and a gradual reopening of the Straits of Hormuz would keep barrels from returning quickly. In his view, the adjustment would take months, not days, with refined products likely remaining tight through the summer.
He also said the price level is already hurting emerging markets, with meaningful demand destruction in Asia, but not yet in the United States or Europe. On trading, he thinks the market is moving away from a purely directional oil view and toward relative value, as investors unwind downside hedges and producers become more active while consumers remain attentive near $85 oil.
Key takeaways
- Jerome Dortmans sees oil as still highly binary, with a failed memorandum likely to push crude and refined products back higher.
- He expects a deal-related selloff in crude, but not materially below $80-85 if peace progresses.
- Dortmans said the market has already seen 3-5 million barrels a day of oil demand destruction, mostly in Asia and emerging markets.
- He thinks the biggest downstream pressure is in refined products, where jet fuel, naphtha and diesel can tighten even if crude normalizes.
- He said investors are shifting from downside hedges to more active producer selling as the cease-fire improves the odds of barrels returning through the Strait of Hormuz.
Notable quotes
“the market just seems to be trading, I would say broadly between sort of $95 and $105, with a spike here and there when things look a little bit more confrontational”
“If these negotiations don't go well and we do not sign this memorandum that is due to be signed within the next, well, now 24 hours, and we go back to reescalation, then everything is again mispriced”
“I do anticipate that the market sells off, but I don't anticipate that it sells off materially below sort of $80-85 levels”
“the market is anywhere between 3-5 million barrels a day of oil demand destruction so far”
“I think we move away from, I would say, a directional market and more into a relative value market”
How the episode opens
This is The Markets. I'm Chris Hussey, and today is Thursday, May 7th. And I'm joined in London on the Goldman Sachs trading floor by Jerome Dortmans, co-head of global Oil and Products Trading within Global Banking and Markets.
Jerome, thanks so much for joining us. Pleasure. Let's talk about oil because oil was way up.
It's now come down about $20 from its recent peak. What do you make of the price action here? What are the scenarios going forward?
Yes, you know, we obviously, when the conflict started in March, we very quickly went to sort of around $120 a barrel in the futures markets but then traded on the cash markets well above $170. And obviously product prices also spiked. Since then, we've had the market reaction function work pretty well.
We've seen SPR releases. We've seen some demand destructions, some refinery run curtailment, and we've also seen policy shit for unsanctioning barrels. So that supply came to the market, and in April we saw sort of a compression of the cash prices to the futures.
So once we got beyond the initial stress and we had the market reaction function of the physical supply, then it was about how do we conclude this conflict in an effective way? That has been harder to accomplish as we have obviously seen, and we're still trying to make that happen. But what has changed in April is that we've had a cease-fire.
So we have now also taken away the risk premium that was in the market in March for any more damage to local infrastructure, to production, and refining and gas production as well. And how are markets making sense of all of this discussion that seems so ongoing? So the market feels a little bit more comfortable in this phase and in this period of negotiation.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- oil price drivers
- iran conflict risk
- crude oil trading
- refined products trading
- market optimism
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “How to Trade Oil Now” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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