In our last piece, we talked about the possible outcomes in the oil market following the mid-term elections. As of 11-30-22, the midterms are still not complete. As we approach the remaining run-off election in the state of Georgia the oil market is starting to see some very concerning issues with public statements being made by “credible sources”
Last week the Wall Street Journal published an article stating that OPEC+ was going to raise their production by 500,000 barrels a day. This caused an almost immediate $5 drop in the WTI pricing. Approximately 3 hours after the article was published OPEC+ released a public statement denying any and all such claims. The price rebounded within hours.
Earlier this week the White House walked back its proposed plan to refill the Strategic Petroleum Reserve as well. Less than 2 months ago the administration publicly disclosed their plan to refill the SPR when prices reached a consistent level of $67-$72 per barrel. Their most recent “proposal” is to wait for prices to drop below $70 per barrel on a “consistent” basis, once again delaying their intentions to refill the SPR, further deepening national security concerns.
Keep in mind that in the last GDP report, which showed a 2.6% growth (right before an election, after two consecutive declines) the major economic drivers were the following:
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The largest-ever exportation of US liquid natural gas to Europe
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Sales from the SPR to foreign nations, primarily China
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Weapons sales to NATO nations in Europe
The first two may have shown an increase in national revenue, but both have and will impact domestic reserves.
By the way, when you remove these three major driving factors within the report the numbers show that the US economy shrank, significantly.
We always try to look for facts and evidence to form an opinion on the market moving forward. That said, the aforementioned information is extremely alarming, to say the least. One thing we can concur is that what we hear is not always the truth.
What we do know to be true is that uncertainty is understandably high, which is creating volatility in prices. We also now know that supply is a major issue, despite the “demand destruction” being touted by the current administration.
Earlier today the U.S. Energy Information Administration reported a crude oil inventory decline of 12.6 million barrels for the week to November 25. At 419.1 million barrels, oil inventories are 8% below the five-year average for this time of the year. Perhaps this fact is the main reason we are seeing so much misinformation about demand at this time. Time will tell.
The coming weeks will be some of the most important for the oil market in quite some time. Several events are colliding simultaneously that could determine the trend in prices by the end of this year and into the next.
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Chinese zero-Covid policy and protests
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OPEC+ meeting on December 4 just occurred and the Audis have stated that they are not, currently going to be increasing production.
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The start of the EU embargo on Russian seaborne crude oil imports, which is showing signs of struggle in the markets. We will keep a close eye on this moving forward.
We will be watching these events very closely.
One thing we can see clearly is that our current focus is and always will be the right thing to do, increase volume. The more we drill and produce the safer the environment we build for our investors, our company, and the country as a whole.
