Delaying Tactics. The Energy Report 11/29/2023

Oil prices have moved up and down based in part on OPEC Plus delaying tactics. Markets were very concerned that disagreement between Saudi Arabia and smaller African nations regarding their production levels could derail the rollover of the expected OPEC plus agreement. As a reminder, that cut is about 5 million barrels per day (bpd), or about 5% of daily global demand. It’s a series of steps that started in late 2022. This includes Saudi Arabia’s additional voluntary production cut of 1 million bpd which is due to expire at the end of December and a Russian export cut of 300,000 bpd also until the end of the year according to Reuters.  We are also getting support from weather. Reuters reported that “A severe storm in the Black Sea region has disrupted up to 2 million barrels per day (bpd) of oil exports from Kazakhstan and Russia, according to state officials and port agent data, raising the prospect of short-term supply tightness. Kazakhstan’s largest oilfields are cutting combined daily oil output by 56% from Nov. 27, the Kazakh energy ministry said.

This morning though there are reports that OPEC plus talks are continuing and there is no fresh delay expected to the November 30th meeting. This is coming from 2 unnamed OPEC sources which have been very busy in recent days sending messages to the market and causing flips and dips. Just yesterday for example there were four unnamed OPEC sources that dropped hints that there indeed could be a delay to the November 30th meeting because of this ongoing dispute between Saudi Arabia and smaller African producers. Reuters reported these very busy unnamed sources as saying that the OPEC+ talks on oil policy are difficult, making a rollover a possibility rather than deeper production cuts to support the market, four OPEC+ sources said on Tuesday.

So, should we pay more attention to the four unnamed sources or to today’s two unnamed sources? Well, four is more than two. Yet is this OPEC Plus soap opera really going to matter? Saudi Arabia is flexing its muscles and ultimately has the most influence. They hold the oil cards, so to speak. That is why Saudi Arabia today is signaling to the market that they plan to lower the selling cost of their oil to Asian buyers.

This is an attempt to regain some market share back from Iran and Russia which have benefited not only by Saudi Arabia’s lollipop voluntary 1.0 million barrel a day production cut. It was Saudi Arabia that added a voluntary 1,000,000 barrel-a-day production cut. The problem with that is countries like Iran have filled that void by raising their production along with other countries like Nigeria and Angola even though their increases are very insignificant. We have seen an increase in production and exports by Russia.

US oil production has also gone up as innovation in new ways of counting barrels by the Energy Information Administration has caused us to produce record-breaking numbers. Venezuela is finding more investors for their oil industry which was decimated by the socialist regime in the country that is being led by a leader that the US believes was illegitimately elected. The Biden administration has turned a blind eye to enforcing Iranian oil sanctions and that has allowed them to raise production to another five-year high. They have also failed trying to cut off Russian oil revenue. Oh, sure they did support that ridiculous price cap scheme that was doomed to failure. The Biden administration told the world that they thought that the price cap would work. The reality is they knew that it was going to fail. Either that or they are just incredibly incompetent. Which I can’t take off the table.

That raises the question of why countries like Venezuela, Russia and Iran can raise output when supposedly they’re under sanctions. It’s called the failure of leadership and a lack of courage and more than anything, it is the burning desire to hold onto power regardless of the consequences. The Biden administration is more interested in preserving power than taking a tough stand against global dictators that have taken advantage of their failures to enforce sanctions allowing oil revenue to be used to either oppress their own people and cause war and global instability. The Biden administration has turned a blind eye to Iranian sanctions that helped Iran fund Hamas.

Russian sanctions have failed to really put the clamps down on Russian oil revenue. Yet the blame is also on Europe who choose to forgo their own energy security to follow the whims of the green energy elites.

Russia continues to use that revenue to fight its war in Ukraine. The more money Russia must fight that war with, the more money the Biden administration is going to want from US taxpayers to pay for Ukraine to fight. Maybe a better strategy would have been to come down hard on Russia’s energy and bite the bullet and if you did, you could bankrupt Russia and destroy their economy. Ronald Reagan’s defense spending in the Star Wars program helped the Soviet Union spend its way into bankruptcy.

In Venezuela, the Maduro regime can trample over the rights of the Venezuelan people and get rewarded by the Biden administration allowing them to rebuild their decimated oil industry. The Biden administration said they would lift some sanctions on Venezuela for a return for free and fair elections. How free and fair can those elections be if they take the popular opposition off the ballot. Obviously, Venezuela never had any intention on following through with free and fair elections. Venezuela did know that the Biden administration lacked the strength because they knew that they were desperate to get crude oil diverted to the United States. That is especially true of the heavy Venezuelan crude to fill the void that the United States has going into winter.

Today we’re going to get a report from the Energy Information Administration that shows how big that void might be. The American Petroleum Institute reported a nice seasonal build of 2.806 million barrels.

But an 817,000-barrel crude draw and an 898,000-barrel gasoline draw gave the complex a slightly bullish tilt. If the Energy Information Administration confirms what we saw in the American Petroleum Institute, that means the rumored crude oil build and product build that we were supposed to get is not happening. It also means that there were oil tankers that supposedly were coming to the US in record numbers to collect U.S. oil and products probably arrived, filled their tankers and are on their way out of the country.

Address should be putting out hedges at these levels. We expect to see the market tighten significantly in the coming weeks we did have our traditional Thanksgiving sell-off which is becoming more of a tradition than turkey. There is the possibility of a huge upside reversal and is looking more likely as the market broke the sharp downtrend yesterday. It has a lot of room to move on the upside. Look to buy calls.

Cold temperatures are not enough to keep natural gas up. This morning there is talk of a little bit of a warm-up after below-normal temperatures in big parts of the country. Overseas temperatures continue to be very cold and below normal. We’re at the highest end of our export capabilities and we should export a record amount of natural gas. The problem is we’re producing more than we can export at this time but producers are ramping up for the future where export capacity is going to increase in a couple of years.

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