Oil prices are still trying to bottom but are set for their first quarterly loss since 2020. The focus in the oil market is not about current supply and demand any more but the potential risk to demand in the future. Despite talk of slowing demand, the reality is that the supply side has yet to catch up. If it were not for the global central bank raising interest rates and fears of a deep recession, the market would be in a real panic about the ability of oil producers to meet demand. Yet, there are dangers lurking that could snap the oil market out of its recession obsession. The risk to supplies are rising after the attacks on the Nord Stream one and Nord Stream two pipeline. There are also reports by Total that an unauthorized drone was flying near its oil platforms in the North Sea and the fact releases from the Strategic Petroleum Reserve next month will come to an end.We already know that in Europe, because of the war in Ukraine, a cold winter could have a devastating impact on their ability to meet demand. Talk of a European price cap seems to be floundering as some members of the EU realize that a price cap will not be helpful in increasing supply.The Organization of Petroleum Exporting Countries and its allies are set to meet next week And the word on the street is that we will see a production cut somewhere in the area of 500,000 to 1 million barrels a day. This comes at a time when the Biden administration releases from the Strategic Petroleum Reserve are supposed to come to an end, which means that we will see a supply drop off of at least 2 million barrels a day when it considers the OPEC cuts potential as well as the drop in releases from SPR.At the same time, the Biden administration is finally cracking down on Iran and their illicit oil sales. They have been turning a blind eye to Iranian oil exports mainly because the base wanted to get back into the failed JCPOA agreement despite the fact that the Biden administration did everything they could to get back into the deal It was obvious that Iran really had no desire to come to an agreement and why would they agree to a new JCPOA deal when they fail to live up to the spirit of the law in the last agreement?
So Biden finally is deciding to crack down, and while they claim that they were cracking down on Iranian oil sales the truth is they turned a blind eye. On Thursday they put sanctions on China and other nations it accused of helping Iran evade bans on its oil and petrochemicals and threaten to go after any companies that were in on this.The Wall Street Journal reported, “The European Union’s statistics agency on Friday said consumer prices across the Eurozone were 10% higher than a year earlier, the highest inflation rate since records began in 1997, two years before the launch of the common currency. Records for individual countries go further back-Germany’s statistics agency on Thursday said the country’s September inflation rate was the highest since late 1951.”The oil market is still showing signs that it wants to bottom but fails to complete the process. Crude needs to close above 80 today. If so that should bring in a massive amount of short covering. We think it’s only a matter of time before oil bottoms and starts trending higher. Winter is coming and supplies will tighten. We expect that the Chinese economy at some point will reopen and the truth is that despite the fact that the Fed is trying to slow the global economy, it won’t be fast enough to offset the shortage of supply.