Will OPEC Strike Back

It's time for revenge on the OPEC Plus cartel. Today is the day that OPEC Plus could send a message to the Biden administration that they cannot push them around. The Biden administration's feeble attempt to try to control global oil prices by getting other countries to conspire to release supply from global reserves could easily be thwarted by the OPEC decision today.

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There are now reports that OPEC will consider increasing their output by only 200,000 barrels a day in January which is less than the 400,000 barrels a day initially agreed to. The other option that is being discussed is to just totally pause the production increase in January. The initial reaction is that OPEC will keep the present oil output plan to avoid a showdown with the United States.   The JMMC  meeting ended without a recommendation.

We know that Russia and Saudi Arabia are incensed at the Biden administration's hypocritical energy policy that continues to restrict U.S. oil production but at the same time blame OPEC for withholding supply. If you look at the oil numbers it's the United States that is still about 1.4 million barrels a day of production off their peak that is causing a deficit in the global market, not just OPEC plus Russia. Yet despite being angry, Russia and Saudi Arabia are being encouraged by U.S. allies such as Kuwait to not get into a diplomatic fight with the United States over oil production. Saudi Arabia and Russia have been relatively quiet in response to the Biden administration's SPR release conspiracy.

Reuters reported that the Biden administration could adjust the timing of its planned release of strategic crude oil stockpiles if global energy prices drop substantially, U.S. Deputy Energy Secretary David Turk told Reuters on Wednesday. Turk, speaking in a video interview for the Reuters Next conference, added that other consumer nations that had agreed to release strategic reserves in concert with the United States to tame prices could also adjust their timing if needed. Yet when the White House was asked about this comment, they seem to deny that there is any thought to changing the timing of the SPR release. This is crazy because if indeed demand is impacted because of the virus, then they’d be trying to release oil into a market where there are no buyers.

The reality is that oil is still being traded more on fear than reality. Yesterday was a perfect example of that when oil prices were trying to mount a substantial recovery and news of the first omicron case was reported in California. That report trashed not only the oil market but the stock market and commodities pretty much across the board. The fact that we had a case in the United States should not have been that shocking at all. When you're running on fear and still have unanswered questions about this virus the market will continue to overreact.

The funny thing about yesterday's inventory numbers from the Energy Information Administration (EIA) is it seemed to suggest that the market was working and didn't need help from the Biden administration. I point to the fact that gasoline demand in the weekly numbers fell dramatically and part of that may have been because of the holiday but it could also be because high prices are starting to cure high prices. The reason why prices were going up in the first place was that demand was exceeding supply. Gas prices went up and now demand is cooling off and when demand cools off, prices go back down. So Biden just keeps the oil in the reserve and reverses this ridiculous SPR release that is only going to increase tensions with other countries and will end up costing us more oil in the long run.

Total demand on the U.S. system fell 1.5 million barrels last week. Supply fell by about 900,000 barrels and it would have been larger if it were not for a 1.9 million-barrel release from the strategic petroleum reserve. U.S. crude oil refiner lower than expected.

Oil prices also got a little bit of a dip after a report that negotiators with Iran came up with some type of a draft agreement as quoted Iranian State-run press. Reuters reported that Iran has provided European powers involved in its tattered nuclear deal with drafts on sanctions removal and nuclear commitments, Iran's top nuclear negotiator said on Thursday, as world powers and Tehran try to reinstate the pact. The announcement came on the fourth day of indirect talks between Iran and the United States on bringing both fully back into the deal. The talks resumed after a five-month hiatus prompted by the election in June of Iranian President Ebrahim Raisi, an anti-Western hardliner. Does anybody believe that this deal is going to get done anytime soon and even if it does get done, should the market expect a lot more oil coming on to the global market. Iran is already exporting a lot of oil as the Biden administration and other world leaders fail to enforce sanctions. So much for the carrot stick approach.

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