Today, Wednesday, October 5, OPEC and its allies, including Russia, approved a two million barrel-a-day cut in oil production. This is the largest cut in production since the onset of the pandemic. Here’s the key paragraph in the OPEC+ statement: “Adjust downward the overall production by 2 mb/d, from the August 2022 required production levels, starting November 2022 for OPEC and Non-OPEC Participating Countries as per the attached table.” On the news, oil and oil stocks extended the rally that began on news leaks yesterday.
Should be an interesting day in the oil markets tomorrow, Wednesday, October 5. After a rally in oil stocks and oil prices themselves on Monday on an informed rumor that OPEC+ was considering a cut in production of 1 million barrels a day at its Wednesday meeting, today the rally kept going as speculation extended to the possibility of a cut in production of as much as 2 million barrels a day. U.S. benchmark West Texas Intermediate ended up 3.46% to $86.52 a barrel. International benchmark Brent rose 3.18% to $91.69 a barrel.
All it takes is a report that OPEC+, the group of oil-producing countries that includes Saudi Arabia and Russia, is considering a big cut in production at its meeting this week to send oil and oil stocks off to the races. As of noon New York time on Monday, U.S. benchmark West Texas Intermediate is up 4.21%, and international benchmark Brent crude is higher by 3.75%.
I sure hope President Joe Biden got a T-shirt from this recent trip to Saudi Arabia. You know the kind. One that says, “I went to Saudi Arabia and all I got was this lousy t-shirt.” Because he sure didn’t get a deal for increased oil production from the Saudis.
Today, March 31, OPEC+, which includes Russia, decided to stick with their previously agreed plan of modest monthly increases. Despite repeated asks from Washington and European countries to increase production in order to make up for shortfalls from Russia due to Western sanctions on that country as a result of its invasion of Ukraine, OPEC+ said it would increase oil output in May by 432,000 barrels a day, a slight uptick from the agreed increase of 400,000 barrels a day. The small increase–essentially no increase at all–would be for “technical reasons.” OPEC+ repeated its outlook for a month ago saying that the outlook was for “a well-balanced market” and that recent volatility in prices was “not caused by fundamentals, but by ongoing geopolitical developments.” Well, yeah. And isn’t that the point?
Brent crude, the international oil benchmark, broke above $95 a barrel on Friday to an intraday high of $95.66 before closing at $94.44, up 3.31%. U.S. benchmark West Texas Intermediate closed ahead 3.58% to $93.1 after trading as high as $94.66. The short-term reason was increased fear of a wider shooting conflict between Russia and Ukraine. Long-term term, reason higher projections of global oil demand in 2022 from the International Energy Agency. The IEA raised its 2022 demand forecast and said it now expects global demand to expand by 3.2 million barrels per day this year. That would take demand to an all-time record.
OPEC has decided that the current global economic recovery is very fragile and that the smart course is to raise production only gradually. The Organization of Petroleum Exporting Countries said the global oil market will switch from being under-supplied to over-supplied as early as next month. Which would certainly imply that oil prices are set to fall from today’s (November 16) close of $80.79 a barrel for U.S. benchmark West Texas Intermediate and $82.52 a barrel for international benchmark Brent. Oil hit a 7-year high of $85 a barrel in October. But you don’t have to look far to find those who don’t see oil falling from today’s levels–and who in fact see oil staying at elevated levels into 2022 or 2023.. At the end of October Goldman Sachs forecast $85 for 2023. BNP Paribas sees crude at almost $80 in 2023. Other banks including RBC Capital Markets have talked up the prospect of oil being at the start of a structural bull run. My view? There’s just too much noise pointing in competing directions to feel certain about any trend. (At least not certain enough to encourage me to put money on the line in my portfolio.) But, if I had to pick a side, I’d go with the “oil will move lower from here” crowd.
The dispute over oil production quotas between Saudi Arabia and the United Arab Emirates that blew up the OPEC+ meeting two weeks ago looks to be over. Under the compromise, the UAE will see its baseline production level rise to 3.65 million barrels per day when the current pact expires in April 2022, a source told Reuters. The current baseline for the UAE was around 3.17 million barrels per day. In exchange the UAE agreed to a Saudi proposal to extend the April 2022 production agreement until December 2022.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. The thirty-second YouTube video “OPEC and the threat to green energy stocks” went up today.
Today, January 5, Saudi Arabia shocked OPEC+ with a voluntary 1-million-barrel-per-day output cut. The announcement came after OPEC and Russia agreed to allow a 75,000 barrels a day increase in total production from Russia and Kazakhstan in February and March. On the news U.S. benchmark West Texas Intermediate climbed 5.00% to $50 a barrel and international benchmark Brent gained 5.05% to $53.67 a barrel.
Oil managed to close to the upside today, December 29, even though OPEC+ is set to add another 500,000 barrels a day to output starting in January.