Just a few years ago the mantra on oil prices was “lower for longer”. Irrational pessimism about the dynamic power of the U.S. economy, as well as a misunderstanding about the potential and risks associated with shale oil production, substantially impacted investment decisions. We had this doom and gloom attitude that the U.S. days were behind us and our manufacturing in the U.S. was hopelessly lost forever. There was a belief that the U.S. would be in slow growth mode forever and there was no way to bring jobs back. That there was no way to do it. What are you going to do? Wave a magic wand?  Now, because of those miscalculations, instead of “lower for longer”, we are going to have to get ready for a new era of higher for longer when it comes to the outlook for oil prices.

That realization hit oil markets as intermarket spreads between the front end of the West Tessa Intermediate WTI and the backend came in sharply and Brent Crude regained on WTI. Brent crude rose on news that Libya’s oil ports may be shut for some time. Bloomberg news reported that Libya’s oil output will keep dropping day by day if major ports remain closed, after clashes last month led to a political deadlock, the head of the country’s state energy producer said. “Today, production is 527,000 barrels a day, tomorrow it will be lower, and after tomorrow it will be even lower, and everyday it will keep falling,”

In the U.S., WTI had been surging in the front end of the oil dated curve, on the Canadian Oil sands outage with Syncrude. The outage removed about 360,000 barrels of oil that flows into Cushing, Oklahoma, the delivery point for U.S. futures. Yet, the fact that the company gave us a start date of September and the fact that private forecaster Genscape saw a surprise increase in supply in Cushing Oklahoma, saw the backend of the futures curve really gain on the frontend. The frontend had soared on the Syncrude outage and now the backend will gain ground, as the market will have to price in lower for longer.

The global oil market is already seeing the impact from the Trump Administration's hardline November 4th deadline oil sanctions on Iran. Companies are running away from Iran like they would from someone with the plague, or an insurance salesman. Just kidding. The Saudis and Russians may try to replace that crude but are going to have a hard time doing that as global demand is still growing at above par pace. Yes, even with the slight dip in Chinese demand, and yes, even with the sanctions tit for tat that the market is already showing us was over feared and overplayed.

Bloomberg reported that Iranian oil shipments to some U.S. allies are being threatened even before America’s Nov. 4 deadline for buyers to curb imports and comply with renewed sanctions on the OPEC member. September-loading cargoes are set to be the last to head for Japan if the Asian nation doesn’t receive an exemption from the U.S., people with knowledge of the matter said. South Korea, meanwhile, is said to be facing problems with July shipments because of tanker-insurance and chartering issues, with buyers already shunning a form of oil known as condensate from the Persian Gulf state. A Taiwanese refiner is mulling ending purchases.

Lack of heavy crude oil is making the distillate market very tight. Despite recent seasonal weakness in demand, the market remains tight. Rising jet fuel costs and diesel prices are bound to continue, and if you are not hedged, please do so.

U.S. Shale producers are trying, but bottlenecks and labor shortages are impeding what they can do. More pipelines are on the way, but we can’t build them fast enough. Gasoline prices are edging up as well. Strong U.S. jobs growth and consumers who are feeling better about their prospects about life will keep those gallons burning.