Don’t fight OPEC?

We say ‘Don’t fight the Fed’,
Perhaps Biden shouldn’t fight OPEC?
What a terrible politically motivated decision especially when the SPR is normally kept for emergency supply disruptions such as in case of a hurricane etc.

And he asks or even persuades other nations to join him in their own ‘release’.

Such ad-hoc ‘band-aids’ seldom solve and this releases will be soon forgotten.

Alas, the oil price rose 3% today.
Maybe short covering played a part as speculators bet on a larger dumping.

Biden just added supply this hurting his own U.S. drillers. With this type of decision, drillers are hardly about to make capex decisions to drill more.

This story also mentions how the replenishing costs may be detrimental to refiners.

Lo and behold, pending OPEC’s response in the coming months, the reflexivity of this scenario means oil prices make their way lower due to inflationary pressures crimping GDP growth.

Furthermore, Biden becoming worse at international diplomacy. His relationship with Saudi Arabia is dreadful (interesting Saudi and China) are close allies.

His relationship with Russia is awful. (And Russian troops gather around Biden’s mates in the Ukraine)

And China and Russia definantly cooperate.

To understand Oil, it’s worthy to watch how the world works.

Biden’s juxtoposition

I’m always entertained by these stories.

https://www.bloomberg.com/news/articles/2021-11-03/opec-heads-for-geopolitical-showdown-as-biden-demands-more-oil?sref=qLOW1ygh

Firstly, the United States isn’t part of OPEC.

When you’re not a member of a member based organisation, how can you expect to have your requests (demands) actioned?

Secondly, the irony of Biden asking OPEC to pump more oil (so to ease U.S. domestic gasoline prices) while he is attending COP26 in Glasgow is comical.

Thirdly, he seems to be targeting blame at the Saudi’s for not increasing their output. There are other nations which make up OPEC and OPEC+.

Biden is proving to be a poor manager of geopolitical nuances.

But there any many more angles to this story;

Imagine if the U.S. was still a net exporter of oil?

A lower oil price may make their shale market uneconomical?

The U.S. can always lift sanctions on Iranian oil, allowing it to hit the market?

p.s. In my view, the decline in Crude was expected once OPEC said they won’t be increasing output. Why? Because, we will be closer to output being increased at the next meeting……Markets price in the probability of next move quickly.

#oil

November 5, 2021

by Rob Zdravevski

rob@karriasset.com.au

Reviewing Times Of Oil Excess

I wrote the linked article in September 2012 when Oil was trading at $117, predicting bearish times ahead.

Since the rout in the first half of 2020, I have been an oil bull.

https://robzdravevski.com/2012/09/17/lower-oil-prices-by-2020/

March 5, 2021

by Rob Zdravevski

rob@karriasset.com.au

An Oil Shock in stealth

OPEC are meeting today, it could be a doozy….murmurs of supply cuts.

My question to answer what OPEC may decide is…..

what do the Saudi’s and Russia want or need ??
and what will hurt America the most ??
especially following the recent accusations made by the U.S about MBS and Biden approved missile strikes against Iranian backed militia…….

the answer is higher oil prices.

Logic suggests a nice reversion of Brent back to $53 would be sensible, equitable etc.
but without being a purposeful antagonist and we are a year on from last years March 8th stoush,

although Brent at $75 would remind many who’s in charge….

and I reiterate that inflation (meaning higher interest rates and higher government and corporate debt servicing costs) will likely come from higher prices in the energy complex and definitely not from services and consumer products.

March 4, 2021
by Rob Zdravevski
rob@karriasset.com.au

Who is calling the shots

Putin and MbS are having talks again,
watch the oil price,
timing interesting near the U.S. election,
output cuts are the logical bet,
there is nothing like petro-nations needing petro-dollars.

Lower Oil Prices By 2020?

Venezuela is the largest holder (18%) of the world’s proven oil reserves. If we discount any government inflated figures and the difficulty and costliness of extracting from the Orinoco Belt, let’s agree that they may come in slightly lower than Saudi Arabia.

Although, this comparison is between one country to another. It is worthy to note that Middle Eastern countries collectively hold 48% of these reserves.

Recently, it has been reported that Venezuela may default on its debt sometime in 2013.  I don’t believe they will, but they will create tensions and ransoms surrounding such a possibility.

They will simply produce more oil receipts to service or extinguish their debt. The IEA, OPEC and Saudi’s have also said that they would like to see oil prices lower than their present levels.

Recently, it seems that the oil price has been supported by speculation or anticipation surrounding geopolitical tensions and probabilities.

Israel’s equally hostile reaction to Iran’s previous threats has bid up the oil price of late along with populous Arab uprisings, although geopolitically, it would be wise for Israel to seek counsel from the United States before any pre-emptive missile attacks.

Although Iran would prefer a better scenario, but covertly they would welcome higher oil prices as it would ease the fiscal pain associated with new rounds of sanctions while Venezuela needs higher prices to make their tar, economically viable.

Much of America’s foreign policy is oil based and higher oil prices wouldn’t help America’s economic plight. Look for more diplomatic focus towards South America and  the former Soviet Republics.

The fundamental case for lower oil prices includes a subdued global economy, cheap coal and abundant gas (shale or otherwise) and record levels of oil production capacity will help keep the price of oil low.

Furthermore, there is so much oil in the world, we are not close to a “peak oil” scenario. In fact, the value of the world’s proven reserves amounts to at least $150 trillion, which is more than the combined value of all of the worlds gold, bank deposits, government debt and the market capitalisation of the worlds listed companies.

Yossie Hollander’s TED Talk summarised it well. There is not enough money in the world to buy all of the world’s oil, thus oil is too expensive.

When investing, you should avoid owning an asset where there is excess supply for I would prefer owning an asset that is in demand but in short supply.

 

 

 

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