OPEC Plus Nightmare

The oil is in a grind with tight ranges and conflicting headlines. A big draw of 1.6 million barrels in U.S. crude and 3.3 million barrels in gasoline in yesterday's Energy Information Administration (EIA) report was offset by a disappointing number on weekly gasoline demand that fell. Still, OPEC seemed to show unity at yesterday's meeting of a ministerial panel of OPEC and its allies, including Russia. Yet, at the same time, they said that the oil demand recovery was taking longer than they had anticipated. OPEC plus noted that they see an alternative scenario where a stronger, more prolonged second virus wave that could lead to lower economic recovery and weaker oil demand. If that nightmare scenario plays out, OPEC sees demand falling by 11.2 mln bpd in 2020, sending q4 OECD commercial oil stocks to 233 mln bbl above 5-yr average. Still, they suggested that they could keep production cuts in place until 2022, which should keep the trend of global oil supply falling. If we get a vaccine as expected, the reality is we should not get close to OPEC's worst-case scenario.

The Federal Reserve minutes spooked the markets by saying it worried about the longer-term meeting and expressed concern about the coronavirus's continuing impact on the economy. Yet it was the comment that "some worried that yield curve control could spur excessive balance sheet growth" that sent shockwaves through the markets. That spurred concerns that at some point in the way distant future, money printing unlimited could end if the Fed sensed that stock valuations were getting too high. That caused a mini taper tantrum, and the dollar bounced, and that hurt gold. Gold's big sell-off again filtered to other futures markets as the spec play and volatility in gold is affecting other markets. Funds having to raise cash to fund big moves in gold have on more than one occasion, caused selling in other markets.

The crude oil market is hanging in as China is still in the market to but a lot of U.S. oil. Even though President Trump said that he did not want to talk to China right now, a meeting to discuss the progress on the Phase One Trade Deal has been rescheduled. That should support commodities even if the dollar recovery may not.

THE AP reported that Iran has seized a ship registered to the United Arab Emirates (UAE) and detained its crew, in a fresh flare-up of tensions in the region. On Monday, the UAE's coast guard opened fire on some Iranian fishing boats, killing two anglers, and seized one of the vessels, and detained the fishermen, according to Iran. Iran’s Foreign Ministry said Thursday that it summoned the UAE envoy after Monday's incident. The ministry said in a statement that Iran expressed its anger to the Emirati charge d’affaires in Tehran on Tuesday, a day after the incident. The move came amid the already heightened tensions over the controversial Israel-UAE deal announced last week by U.S. President Donald Trump. Iran’s powerful Revolutionary Guard vowed Saturday there would be dangerous consequences for the UAE after it said it would establish diplomatic relations with Israel. The UAE is the first Gulf Arab state to do so and only the third Arab nation to establish normalized relations with Israel, Iran's regional archenemy. Iranian President Hassan Rouhani also condemned the Emirati move. In a televised speech Saturday, he warned that the UAE had made a “huge mistake” in reaching a deal toward normalizing ties with Israel. Rouhani warned the Gulf state against allowing Israel to have a “foothold in the region.” 

Oil traders better watch this. They need to watch the Atlantic as well as Fox News reporting that Tropical Depression 13 is moving toward South Florida, according to the National Weather Service. “South Florida is still in the forecast cone of Depression 13, but there is still high uncertainty to determine what, if any, impacts this system may have on South Florida at this time,” NWS Miami tweeted early Thursday. The NWS forecast model shows the depression near Puerto Rico on Saturday morning and reaching South Florida early next week. The National Hurricane Center said there is a risk of tropical storm conditions in the Virgin Islands and Puerto Rico Friday night and Saturday.