Two days ago, Christian Malek, JPMorgan’s head of energy strategy, cautioned that in the midst of the recent drop in oil prices, the Biden administration is likely to steer clear of scaling back the CTAs (which are currently in full short squeeze panic mode today). Is influenced. The oil market was underestimating the potential for deeper supply cuts this month during the OPEC+ meeting on November 26.Thank you for reading this post, don't forget to subscribe!
“The market is probably assuming a very low probability of that happening, I would say it’s much higher than that — not as a base case but as a scenario,” Malek told Bloomberg in an interview. ,“So that we can get ahead of the potential weakness in the first half of next year.”
“We may need to look at “reductions” where the balance lies, especially given demand trends.” And while “there is this idea that the Saudis have been tapped out”, Malek said he does not believe it: “I think there’s more flexibility if they want to make cuts. We could see them making substantial reductions from here; Having said that, I think it’s more likely they would want to socialize them among their OPEC peers – a collective cut rather than one on their own.”
And so, from the strategists at JPM to the ears of OPEC+, as the FT reported a while ago, what was until recently unimaginable has suddenly become possible and is being blamed (mostly) on what Israel is doing in Palestine. ) Thanks largely to Arab outrage: According to the FT, Saudi Arabia is not only ready to extend oil production cuts into next year OPEC+ is pondering further reductions in response to falling prices and increasing anger over the Israel-Hamas war.
Why? Because while OPEC+ is not directly involved in the Gaza war, it certainly did not expect Biden to attack Oil Trading Desk oil as harshly as it did. If anything, it was expected that oil prices would rise above $100. Or as the FT says, “Additional OPEC+ cuts of up to 1 million barrels per day could be on the table, one person with knowledge said, describing the cartel as “galvanized” by the conflict.
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Naturally, further cuts – which are being deliberated by OPEC+ as it gets ready to meet in Vienna on November 26 – could further escalate tensions with the US, although it appears that the cartel No one in the U.S. is worried about offending the old American President. Got schooled by “dictator” Xi Jinping during a recent visit to China’s California colony.
And there’s more: OPEC+ is clearly not happy that the US is openly siding with Israel in the Gaza conflict. And while the fall in the price of oil is the main reason, “members are also angry over Israel’s war on Hamas and the humanitarian crisis in Gaza,” the FT reports.Kuwait, Algeria and Iran are among the OPEC members most incensed by the conflict.”
“You should not underestimate the level of anger that is there and the pressure that Gulf leaders feel from their populations to respond one way or the other.” Another person close to senior OPEC leaders in the Gulf said, effectively confirming that OPEC+ production cuts will directly target Biden’s policies, which aim to keep the price of oil (and gas) as low as possible in the run-up to the 2024 election. have to keep.
The person said there would be no repeat of the oil shocks of the 1970s, when Arab states halted exports to the West. But he added: “People have become cavalier about the possibility of oil supply cuts to send a subtle message that will be well understood both on the streets and in Washington DC.”
Joe Biden, who has crushed the American middle class with his disastrous economic policies over the past three years, faces an impossible re-election battle next year, where he is already leading against his predecessor Donald Trump according to several polls. are losing, and the White House is struggling to convince voters that the country’s economy is healthy. The only thing that shows this is oil and gas prices (which are largely the result of market pricing in the coming recession). If OPEC+ can push oil prices up again, Biden is all but finished.
Something else from the FT:
People close to Saudi Arabia’s thinking stressed that no final decision has been taken yet. He stressed that any public statements by Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman would remain focused on the oil market rather than the Israel-Hamas war.
Prince Abdulaziz recently took aim at hedge funds that have increased their bets against oil amid expectations that the market could slip into a small surplus next year due to a weak global economy and rising supply outside OPEC.
Other analysts suggested Prince Abdulaziz could pressure other countries to deepen the cuts – or follow through on previous commitments to reduce production – by threatening that Saudi Arabia could go back to full production. Unless such steps are taken.
It’s not just the Saudis who want as much oil as possible: Russia relies heavily on oil to finance its invasion of Ukraine, and has been increasing seaborne exports in recent months. However, Putin would also be willing to demand sharp cuts in production if it meant boosting oil prices, enough to cause a worldwide energy crisis.
Meanwhile, the economic reform program of Crown Prince Mohammed bin Salman, Prince Abdulaziz’s half-brother, calls for keeping oil prices near $100 a barrel: The plan includes everything from building ultra-modern cities to hosting the 2034 soccer World Cup. Including till.
Before the FT report, it appeared the news had leaked far and wide, and after plunging into a bear market amid CTA liquidations, we have seen a complete reversal in the price of Brent, as if yesterday never happened. Was.
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