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OPEC Fights the Fed, Crude Jumps 3 Percent on Expected Output Cuts

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50 comments on OPEC Fights the Fed, Crude Jumps 3 Percent on Expected Output Cuts

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WTIC crude chart courtesy of Trading Economics

Bloomberg reports Oil Jumps as OPEC+ Mulls Biggest Production Cut Since Pandemic

Oil surged in early Asian trading after delegates said OPEC+ was considering cutting output by more than 1 million barrels a day when the group meets this week to stem a slide in prices.

West Texas Intermediate futures jumped more than 3%, advancing for the first time in three sessions. While delegates said a final decision on the size of the cuts won’t be made until ministers meet in Vienna on Wednesday, a reduction of that magnitude would be the biggest since the pandemic. 

Oil Jumps On Production Cuts

  • WTI for November delivery rose 3.2% to $82.03 a barrel on the New York Mercantile Exchange at 6:50 a.m. in Singapore. Futures tumbled 25% in the last quarter.
  • Brent for December settlement gained 3.2% to $87.89 a barrel on the ICE Futures Europe exchange.

Biden Mulls Export Limits 

To keep prices from surging in the the US (and US refiners from profiting on Europe’s energy woes), Biden Officials Float Fuel Export Limit in Meeting With Refiners

Senior Biden administration officials pressed executives from some of the largest US gasoline producers to curtail overseas sales during a tense meeting Friday afternoon, suggesting that without voluntary action, the government could force the industry to stockpile more fuel in US tanks.

Energy Secretary Jennifer Granholm and other administration officials chastised the industry representatives for low diesel stockpiles, floating the possibility of export limits and a requirement for oil companies to hold minimum fuel inventories inside the US, according to people familiar with the matter who asked not be named describing the private virtual meeting.

In addition to Granholm, the session included representatives from Exxon Mobil Corp., Marathon Petroleum Corp., Phillips 66 and Shell Plc, as well as National Economic Council director Brian Deese and Amos Hochstein, a senior energy adviser at the State Department, according to a person familiar with the matter.

“The president’s team emphasized that energy companies with record-high profits, record high exports and record-low inventories must step up and bring down prices at the pump,” the Energy Department said in an emailed statement.

Administration officials stressed their concerns with increased petroleum product exports and complained companies were collecting high profits while failing to address low fuel inventories, the people said.  

Hoot of the Day

Biden does a record drawdown of the Strategic Oil Reserves to lower prices then blames big oil companies for low inventories.

How Long Can This Go On?

This post originated at MishTalk.Com

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50 Comments
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Rbm
Rbm
3 years ago

well bidens kind of crazy not trump crazy though. But remember when everyone was waving that flag screaming drill for americas energy independence. Well guess the gas companies not gonna do it by themselves.On another note. Hey ca. why dont you allow outside the state to import gas when those unexpected refinery shut downs happen. Every year ca refineries shut down to change the blend over for winter. Stressing the system with scheduled down time. Every year “unexpected” shut downs at the remaining facilities drive up the fall prices. If it was every five years or so ok. But it happens every year. there is either a problem that needs to be addressed or the gas companies are gaming the system.

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RonJ
RonJ
3 years ago
“OPEC to cut production a million barrels a day.”
Considering that Biden is depleting the U.S. Strategic Reserve, to buy votes, isn’t this move, foreign election interference?
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RonJ
RonJ
3 years ago
“Biden administration officials… suggesting that without voluntary action, the government could force the industry to stockpile more fuel in US tanks.”
That is not voluntary, any more than the Covid shots were. Volunteer or we will will draft you.
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spasidechats
spasidechats
3 years ago
Biden’s SR release plan of 6 months is ending. I thought the supply was low but we still have 388 million barrels to keep any OPEC heat off. https://www.koin.com/news/how-much-oil-will-be-left-in-the-us-strategic-reserve-after-bidens-release/
There are so many moving parts right now with oil. Hard to understand how this sifts out between the big players but I do not believe EV’s have an impact on production now or in the future. As everyone knows almost everything is made with oil. Go ahead and make millions of EV’s, solar panels, wind turbines. Not doing it without oil and lots of it. Nuclear however is another story. If the plan is to drastically reduce oil use only way is nuclear. A great example is the number of times a CCP carrier has to fuel up compared to a US CVN class one. Nobody knows how many decades a CVN can go, classified info but it would looks something like XXXX time to 0.
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Salmo Trutta
Salmo Trutta
3 years ago
Fireworks in the market. Major bottom in stocks. Just in time for elections.
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JRM
JRM
3 years ago
So senile Biden is trying to refill the strategic reserves without paying for it!!!!
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Captain Ahab
Captain Ahab
3 years ago
Reply to  JRM
Bide was a moron to begin with. With dementia, he can really do damage.
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PapaDave
PapaDave
3 years ago
Reply to  JRM
I doubt that he cares much about refilling it. The key was to draw it down to temporarily lower prices before Nov elections. Which has worked so far. Refill likely won’t happen for years. Though when it begins, that will simply be more demand and upward pressure on prices.
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JRM
JRM
3 years ago
Reply to  PapaDave
The white House request to the oil/gas companies, is in fact a “SOCIALIST” move, ie filling reserves without paying for it!!!
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PapaDave
PapaDave
3 years ago
Reply to  JRM
I must have missed that. Links please. I am always interested in oil and gas news.
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Christoball
Christoball
3 years ago

Here’s how the oil majors have performed since their June peak:

Exxon Mobil Inc. (NYSE: XOM)-18.0%, Chevron Inc. (NYSE: CVX)-22.0%, Marathon Petroleum Corp. (NYSE: MPC)-18.3%, Phillips 66 (NYSE: PSX)-29.6%, Valero Corp. (NYSE: VLO)-29.6%, Shell Plc (NYSE: SHEL)-21.9%, BP Plc (NYSE: BP)-19.4%, Total Energies (NYSE: TTE)-25.6%, Eni S.p.A (NYSE: E)-34.1%.

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Christoball
Christoball
3 years ago
Reply to  Christoball
OXY is doing better. Not sure why. I have owned OXY since the 1970’s. I always liked Armand Hammer.
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prumbly
prumbly
3 years ago
Reply to  Christoball
Everyone expects Buffet to take it private. That’s why.
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PapaDave
PapaDave
3 years ago
Reply to  Christoball
Yes. Oil is down from 120 to 80 over that time period. So those stock prices are down since June. Of course, they are all UP since January and up huge over the last few years.
Example TOU
March 2020, $7
Jan 1, 2021, $18
Jan 1, 2022, $42
Jun 1, 2022, $79
Sep 30, 2022, $72
And TOU has paid $6.80 in dividends in the last 12 months.
I expect dividends of $9 over the next 12 months.
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PapaDave
PapaDave
3 years ago
Reply to  Christoball
I would like to see you calculate those values again after the market closes today. From both Jan 1st and from June peaks.
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Casual_Observer2020
Casual_Observer2020
3 years ago
This oil price problem is easy to solve. SImply reregulate derivatives so that no hedging is allowed. PERIOD. Right now the traders know the trade by watching what the producers doing in the futures market so they follow the trade closely and drive up the price. Oil prices are not based on supply and demand anymore. Derivatives were unregulated in 2017 again and CFTC has been unwilling to do the work that needs to be done. The price of commodities would fall by 50% overnight if the speculative traders were stopped.
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PapaDave
PapaDave
3 years ago
Reply to  Casual_Observer2020
I have no problem with that. Since oil demand has been exceeding supply for two years now, inventories have been dropping and there is already upward pressure on prices.
However, I very much doubt your suggestion will be implemented.
One has to deal with the world as it is; not the way we want it to be.
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MarkraD
MarkraD
3 years ago
Reply to  Casual_Observer2020
It’s the CFMA that has the CFTC’s hands tied, large investment banks can do whatever they want with futures without the public disclosure requirements of the regular market. Having the ability to manipulate commodity prices allows you to control and foresee input cost changes and know the direction of regular equities tied to a given commodity.
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PapaDave
PapaDave
3 years ago
I was not expecting OPEC to make a big cut, but here we are.
I guess they got frustrated watching the financial markets push the price of oil down, in the expectation of a recession and a possible drop in demand. Particularly since global inventories continue their 2 year long decline.
There is some speculation that they would prefer a price of $90 or higher and are not patient enough to wait for the financial markets to catch up to the physical markets. So they are going to force the issue a little.
As I have frequently stated here:
US SPR releases of 1 Mbpd end in less than a month.
US producers are keeping production flat at 12 Mbpd. The recent drop in prices shows the wisdom of not overreacting to the temporary high prices earlier this year.
OPEC is out of spare capacity. This expected cut will help them restore a bit of that capacity. In particular, they are concerned that it will be needed again if Russian production continues to drop.
Meanwhile on the demand side:
Chinese demand is coming back. The SPR will have to be refilled (not right away, but eventually). And demand keeps growing even during most recessions (it takes a very deep recession to lower demand).
I feel sorry for US oil and gas companies. They are everyones whipping boy. They get blamed for producing a product that contributes to global warming. As a result, they are being abandoned by their biggest investors and lenders. So they have been cutting back on capex (both voluntarily and in some cases from outside pressures) for almost a decade now. Why spend big on exploration to find reserves that may not be needed in 20 years?
But when a shortage of oil and gas leads to higher prices, they get blamed for not producing enough and profiteering from high prices.
As most here know, I own a lot of oil and gas stocks. I used to own some European oil companies but got rid of them when Europe first started talking about extra taxes on them.
Similarly, I lightened up on some US oil companies recently in anticipation of similar “extra” taxes, and possible export restrictions. And here we are, talking about US export restrictions.
My largest positions remain the Canadian oil and gas companies. I do not expect any extra taxes or export restrictions from Canada.
And Canadian oils trade at big discounts to US and European oils.
I still expect oil to average $100 in 2023. Though even at $80 WTI, these companies are going to reward their shareholders big time in 2023 and future years.
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Call_Me
Call_Me
3 years ago
Reply to  PapaDave
It really is a love/hate dynamic, namely loving to “hate” oil companies. Reminds me of tobacco companies in the U.S. when various levels of government had their hate of the companies/products increase in proportion to their love of the associated tax revenue.
You wrote that the cartel is already 3.5 Mbpd under their allotment, so does that make this announcement merely academic as it reduces the number to 2.5 Mbpd or is it an actual reduction of what is currently being pumped?
Call_Me_Al
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PapaDave
PapaDave
3 years ago
Reply to  Call_Me
Lots of unknowns right now. All speculation. As far as I know, OPEC has not officially announced anything till their meeting this week. Though since it is their first in-person meeting in years, some expect a significant announcement.
“On Sunday, the sources said the cut could exceed 1 million bpd. One of the sources suggested cuts could also include a voluntary additional reduction of production by Saudi Arabia.
OPEC+ will meet in person in Vienna for the first time since March 2020.
Analysts and OPEC watchers such as UBS and JP Morgan have suggested in recent days a cut of around 1 million bpd was on the cards and could help arrest the price decline.
“$90 oil is non-negotiable for the OPEC+ leadership, hence they will act to safeguard this price floor,” said Stephen Brennock of oil broker PVM.”
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prumbly
prumbly
3 years ago
Reply to  PapaDave
Plenty of climate change wackos in Canada too.
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Zardoz
Zardoz
3 years ago
Reply to  prumbly
They actually go outdoors, and can see it happening. 24 hours a day in front of Fox News will hide it.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  PapaDave
Um, and maybe OPEC saw the depression coming and cut back supply to keep prices from crashing. Yes, that’s the pessimistic view to counter your eternal optimism. Both are equally dangerous. Somewhere in the middle is the realistic view, which, BTW, is not to say that energy is sometimes a good investment.
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Christoball
Christoball
3 years ago
3% is only a $2.50 change these days with lower oil prices. These changes whether up or down occur regularly. Time will tell but rising energy will only promote more FED rate increases. The Fed is not going to let these guys run off with the money.
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PapaDave
PapaDave
3 years ago
Reply to  Christoball
It isn’t about daily price changes. It is about what prices will average over time. And that is based on the supply/demand balance. Demand has been exceeding supply for two years now. So pressure is for higher prices. Eventually, prices will go high enough to cause enough demand destruction to bring demand in line with supply. That price will be well over $100 per barrel.
Oil is a worldwide commodity which is priced based on worldwide supply and demand. The Fed may have an effect, but not as much as you think.
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MarkraD
MarkraD
3 years ago
I forget where, but I read an analyst saying that OPEC is going to fight tooth and nail from here on to keep oil as high as possible for the fact that oil is in a gradual death spiral over demand drying from EV’s, nat gas & renewables. They see this as their last hoorah.
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1-shot
1-shot
3 years ago
Reply to  MarkraD
OPEC has been doing exactly that since its inception.
And then the debt ridden, poorer members start cheating on the quotas as soon as prices rise, offsetting production cuts, so prices fall again… and the cycle starts all over again.
In between, a few economic booms and busts necessitate finetuning production cuts and cheating levels, but at the end of the day it’s always the same old game.
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PapaDave
PapaDave
3 years ago
Reply to  1-shot
Not anymore. Where have you been? Most OPEC members cannot even come close to their stated quotas. Which was evident when prices rose to $120 this year and many could not take advantage. As a group, they are under producing by 3.5 Mbpd. If they could “cheat” and raise production, they would. But they are tapped out. As an example, Saudi Arabia is spending big to expand their production by 1 Mbpd, FIVE years from now! The OPEC cupboard is bare.
Meanwhile, Russian production, is in slow decline due to sanctions.
It is not “the same old game”. An astute investor would find a way to take advantage of this situation.
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vanderlyn
vanderlyn
3 years ago
Reply to  PapaDave
good stuff. i concur. saudi has been on a tear trying to figure out what to do when the well runs dry and they now have an urban huge population. all in just a century or so. camels to cadillacs back to camels in 2 centuries. but what a party it was……….the future generations will say. WHAT IS THE PLAY PAPADAVE. i enjoy your picks and advice. i’m here for knowledge but more for MONEY.
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PapaDave
PapaDave
3 years ago
Reply to  vanderlyn
I do not tell people what to do in the short term because that is impossible to predict. Though I personally like to day trade a small portion of my portfolio because of the day to day volatility.
In the long run (this decade) it will be well worth owning “some”’oil and gas stocks. I personally have 60% of my core stock portfolio in oil and gas stocks. Though it is up to each individual to determine their level of diversification and comfort.
And almost 80% of that is Canadian oil and gas, with the rest being US. I sold all my European oils.
Two of the best companies in the world right now are CNQ (mostly oil) and TOU (mostly gas). Neither needs to spend big to explore because they already have huge reserves (CNQ 40 years, and TOU 75 years). So they need to spend minimal capex to maintain production. Which means huge cash flows. Both are rapidly reducing debt and buying back shares. Both pay decent base dividends; CNQ 0.75/qtr (4.67%/a), and TOU 0.225/qtr (1.25%/a). Both are also paying special dividends. CNQ paid its first special dividend of $1.50 in the most recent quarter. TOU has paid special dividends for the last four quarters: 0.75, 1.50, 1.75, 2.00. And I expect both of them to continue to pay special dividends, and to keep increasing them if oil and gas prices continue their long term up trend.
They are both larger cap companies, so you won’t get the same torque as small caps, but they are as close to a safe and sure thing as you can get. CNQ can maintain production and base dividends with an oil price of $28.
I hope that helps.
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vanderlyn
vanderlyn
3 years ago
Reply to  PapaDave
big time help. and thank so much for that effort and information. hat tip to you sir.
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PapaDave
PapaDave
3 years ago
Reply to  vanderlyn
You are very welcome. Just trying to help. As always; remember; there are no guarantees.
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vanderlyn
vanderlyn
3 years ago
Reply to  PapaDave
thanks bud. i’ve been trading for my daily bread for decades. again, thanks. best trading book i’ve ever read “trend following” by michael covel. worth the time. i think it’s the best trading book written in 100 years. as good as popular delusions………and reminescenses of a stock operator books written century plus ago.
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PapaDave
PapaDave
3 years ago
Reply to  vanderlyn
Thanks. I will give it a look.
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JRM
JRM
3 years ago
Reply to  PapaDave
You keep saying these things about Russia when the facts on the ground, do not match what the blabber heads in the WEST say!!!!
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Zardoz
Zardoz
3 years ago
Reply to  JRM
Go home vlad, you’re drunk.
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Mary
Mary
3 years ago
Reply to  MarkraD
And why wouldn’t they? They are a business not a charity. The normal course of events is prices rise and more people enter that business but no, no, no “oil is bad, we can’t have that in our backyard”.
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MarkraD
MarkraD
3 years ago
Reply to  Mary
Not even remotely begrudging supply/demand or capitalism.
I am making the case for Capitalist Darwinism, with the advent of EV’s and renewable technology oil demand is diminishing, OPEC being comprised of monarchs and dictators who decide how much our gas tax is going to be is long in the tooth.
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PapaDave
PapaDave
3 years ago
Reply to  MarkraD
You are correct. Oil companies can see the writing on the wall. They know that they are in an industry set to decline over time. Which is why they have been spending less on capex for almost a decade now. Why spend big to build up reserves that you may never need? Some of them are also spending some of that capex on renewables instead.
But the future is difficult to predict. It turns out that worldwide energy demand continues to grow and that growth is not yet being met by renewables. We simply are not building enough renewables; yet. Which means that demand for fossil fuels is still growing.
But because of a decade of reduced capex, supply is now constrained. So demand for oil and gas has exceeded supply for two years straight now. And global inventories continue to drop. Which is putting upward pressure on prices.
And its about to get a lot worse. The world has had a temporary reprieve in price pressures over the last year as OPEC brought back ALL their spare capacity, and the US (and others) had massive releases from their Strategic Reserves.
The SPR releases end within a month. OPEC is tapped out and is about to trim some supply. And European sanctions on Russian crude begin in December.
Oil is going to average over $100 in 2023. The oil companies are going to profit handsomely. I hope you are invested in oil stocks. They are going to do very well for the rest of this decade.
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MarkraD
MarkraD
3 years ago
Reply to  PapaDave
As to the problems outlined in oil, and price, you’re right… it’s growing pains as we transition, also a huge selling point for Tesla.
I’m also curious to see what happens to Fed policy and the economy as oil affects inflation….Hello, Venezuela, wanna be friends again?
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PapaDave
PapaDave
3 years ago
Reply to  MarkraD
Both Venezuela and Iran could help alleviate the supply situation. Though I wouldn’t hold my breath. It is highly unlikely that either will have an impact anytime soon.
And if they did come in with some supply, OPEC could easily offset it with more cuts in order to support prices.
There is 100 mbpd of oil demand worldwide. OPEC supplies 30 Mbpd of that. The US supplies 12 Mbpd. Plus 1 Mbpd from the SPR for one more month. Neither can substantially increase production quickly.
Oh, and US demand is 19 Mbpd.
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Mary
Mary
3 years ago
Reply to  MarkraD

i am sorry but that sounds like wishful thinking. We don’t have the infrastructure to support EVs nor the will to create the infrastructure and no, I don’t mean charging stations, I mean power plants. It becomes the same old, same old – NIMBY

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MarkraD
MarkraD
3 years ago
Reply to  Mary
You’re implying America will never again improve grid infrastructure. (Note to self on probable infrastructure beneficiaries trade)
Like I said, Capitalist Darwinism, not good for the wagon wheel sector, very good for those strange new autonomous carriages coming to market, word has it they’re even faster than horses.
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TexasTim65
TexasTim65
3 years ago
Reply to  MarkraD
They have to.
Those countries have for decades now used oil profits to fund social services in countries that produce little else (including food). Without oil profits those services come crashing to a halt and social unrest follows quickly.
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Zardoz
Zardoz
3 years ago
Reply to  TexasTim65
That’s ok, one of the superpowers will provide them with tools to crush the unrest.
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MarkraD
MarkraD
3 years ago
Reply to  TexasTim65
You’re describing Russia. I suspect agriculture may also be part of Putin’s motives in Ukraine.
Russia’s top exports are oil & gas, after that it’s gold and…charcoal. This probably explains all the gold spammers on the internet.
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PapaDave
PapaDave
3 years ago
Reply to  MarkraD
“I suspect agriculture may also be part of Putin’s motives in Ukraine.”
The war has interrupted agricultural production in both Russia and Ukraine; not to mention exports. I don’t see the motive other than that Putin wants everyone to starve?
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Mish
Mish
3 years ago
Added this to my last post on Bitcoin
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vanderlyn
vanderlyn
3 years ago
Reply to  Mish
i cannot believe saylor said that? is he drunk?
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