Even the Prospect of War in the Gulf No Longer Works.

It doesn't take much to send the price of oil soaring. Seizing a tanker raising the threat of conflict on the Strait of Hormuz in the Persian Gulf once would have been more than enough and we would see it within days at the gas pump. There's been a little blip but...

Maybe those days are over.

Sentiment in the oil market has shifted dramatically in recent days, with hedge funds, producers and traders all taking a more bearish tack in response to what they see as weakness in worldwide demand. 

The oil market has struggled to sustain a rally despite supply restrictions that generally would be considered bullish. U.S. sanctions on Venezuela and Iran have removed more than 1.5 million barrels of daily supply from the market, OPEC extended a supply-cut deal into 2020 and tensions between the United States and Iran are rising. 

Yet, Brent futures have struggled to sustain a move above US$65 a barrel and slumped about 7 per cent last week, while U.S. futures have rarely moved above US$60 a barrel. 

“Given all the bullish news we’ve had, the flat price has hardly changed,” said Janelle Matharoo of InsideOut Advisors, a commodities trading and risk management consultancy. “Fifteen years ago, this kind of news would have shifted the price US$20, US$30 per barrel.”

Well, that's certainly awkward when you've got a multi-billion dollar pipeline project in the works with only taxpayers to foot the bill.

Justin Trudeau famously assured US oil execs that, "No country would find 173 billion barrels of ground and just leave them there." Of course no one, including Canada, ever found 173 billion barrels of oil in Athabasca. That's not oil. It's bitumen. Worse yet, the energy giants got the easy stuff while the getting was good. It is becoming progressively more costly to get the dirtier, poorer grade sludge these days.

Investors don't want oil. They want profit from oil. And, when prices slump profits can be hard to realize from high-carbon, low-value sludge, the very stuff Justin is so hellbent on pursuing.

We've been warned. Even the current and former governors of the Bank of England have warned that there's a volatile 'Carbon Bubble' and, at some point, it's going to burst. It's a 'when', not 'if' proposition but, when it happens, the low-value, high-carbon stuff will become 'stranded assets.' And that's the risk Justin has decided we should bear.