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Biden is the great unifier. His use of the Strategic Petroleum Reserve (SPR) and his support for a Russian oil price cap have unified OPEC and Russia into a marriage of convenience. Despite the fact OPEC and Russia say the market is undersupplied by at least 1.5 million barrels a day, they are staying the course as expected with their oil production cuts.

Unlike House Republicans, OPEC and their favorite co-conspirator stuck together and extended their oil production cuts through the end of the year. Saudi Arabia announced that it will continue its voluntary cut of 1.0 million barrels a day until December and Russian Deputy Prime Minister Alexander Novak said that Russia will also continue its additional voluntary supply cut of 300,000 barrels a day until the end of December of 2023.

This comes as Reuters reported that oil in the US SPR has only 17 days of supply cover. That is roughly half the historical average of 33 days of supplies dating back to 1990.

They also point out that oil prices are still 30% above the target price for the US to refill the reserve which was below $70.00 a barrel.

OPEC is not going to relent even as India is begging OPEC to produce more oil. India is saying that OPEC needs to be more sensitive to the needs of consumers.

I don’t know how sensitive OPEC is feeling these days especially when their sensitivities were hurt when the Biden administration led a global release from the world’s strategic stockpiles. Yet even though OPEC is staying the course, turmoil in the US House of Representatives and sharply spiking bond yields are causing oil to sink as traders get out of oil ahead of what they feel could be economic and political turmoil in the days ahead.

Spiking bond yields are drawing comparisons to the great crash of 1987, which now looks like a minor blip on the long-term monthly charts. John Kemp at Reuters writes that, “Us Treasury yields for 10-year notes surged to 4.80% on October 3 up from 4.09% at the end of August and 3.82% at the end of June as traders concluded persistent inflation will force the central bank to keep interest rates near current levels for a long time. Sharply rising benchmark rates will enforce a slowdown in household and business borrowing, dampening the outlook for growth in 2024.”

Yet while the fear of economic turmoil is real, the impact on oil demand so far is not. Last night the API reported yet another 4.21-million-barrel decrease in US crude stocks. While the API did report that Cushing, Oklahoma was able to eke out a 710,000-barrel increase, the report shows that when you consider that SPR inventories are depleted, there is no cushion for error.

On the oil product side, we did see gasoline stocks increase by an impressive 3.95 million barrels last week. We also saw an increase of the silent inventories by 350,000 barrels. Yet the bigger story for products may be reported that Russia is considering lifting part of its diesel export ban. The report from Oilprice.com caused a bit of selling after it was released but the article really is based on speculation and not any comments that we heard from Russian oil minister Alexander Novak. In fact, Mr. Novak said that the fuel export ban is going last until the Russian home market stabilizes.

So once again oil is caught between fear and reality because the oil market is going into the shoulder season, the possibility that it could be influenced by these outside macroeconomic factors is at a higher risk. At the same time, any stability on the macroeconomic front could cause a big price spike in oil as we saw last week because the supply of oil just isn’t there. We know that Saudi Arabia feels confident but the market is going to stay tight as SAR expects to raise their price for oil.

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