Energy Report: Asserting Authority

The OPEC Plus Russia relationship is in peril as the world fears that disputes could lead to a new oil production war. Talk that the UAE is asserting itself instead of going along with Saudi Arabia is one of the tensions that are simmering inside the group. The UAE wants to have a bigger share of the global production pie and wants OPEC charters to compensate for previous commitments that were ignored. The drama is putting the oil bull market in jeopardy and if it was not for the fact that the UK approved the first Covid 19 vaccine in the Western world, the oil market might have been hit harder. The UK has become the first country in the world to approve the Pfizer/BioNTech coronavirus vaccine, paving the way for vaccinations started as early as next week.

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Bloomberg News reported on the OPECX Plus drama that drove the oil market uncertainty. “Most nations at Monday’s online session favored deferring the 1.9-million-barrel daily supply increase due to take effect in January by three months. With a new wave of virus infections hitting the global economy, they believe demand is still too fragile to absorb additional crude.

But the UAE pushed back, delegates said. Without openly opposing a delay, Energy Minister Suhail Al-Mazrouei insisted on stringent conditions -- mainly the speedy implementation of cuts that other members owed in compensation for pumping too much in prior months -- that rendered an agreement all but impossible.

In an apparent gesture of frustration, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told the group that he may resign as co-chair of a key OPEC+ panel. Al Mazrouei was offered the post but refused, according to a person familiar with the situation.  Now the hope is that they can save a deal but because The Saudis and the UAE are talking. Still, memories of the failed OPEC plus meeting are going to keep the traders on edge. 

 The oil bull case was not helped by a much larger than expected 4.146-million-barrel increase in crude oil supply as reported by the American Petroleum Institute(API). The increase looked more bearish because of a 3.402-million-barrel increase in gasoline supply. That was also a surprise because as you look across the country retail gasoline prices have been rising. That retail increase would have suggested increasing demand over the Thanksgiving Day holiday but the increase in gasoline supply makes the market wonder how sustainable that bump in demand will be. Look at the weekly demand number in Today’s Energy Information Administration (EIA) Version. That gives us a clue. It is possible that with a vaccine potentially on the Horizon the gasoline numbers may be bottoming out and we may start to see some growth. 

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