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Oil Jumps on OPEC+ 'Deep Cut'; Biden Hints at More SPR Release

Commodities Oct 05, 2022 02:46PM ET
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By Barani Krishnan

Investing.com -- Oil prices jumped for a third day in a row as OPEC+ announced what was billed as a “deep” production cut, only that the so-called reduction of 2 million barrels per day was even below the 3.5-million-barrel daily shortfall in the group’s previously announced output target.

Also, with no breakdown of where the reductions would come from — i.e. which countries would be cutting and how much they would be doing — the alliance seemed to expect the market to just swallow whatever it spat out, and hopefully do its bidding of sending prices back near the highs of the year.

Predictably, oil bulls did that just, lapping up the party line that came out of the first in-persons meeting in two years of the 13-member Saudi-led Organization of the Petroleum Exporting Countries and its 10 allies steered by Russia.

Combined with the plunge in weekly U.S. crude and fuel inventories reported by the Washington-based Energy Information Administration, or EIA, the OPEC+ news proved more powerful than it might otherwise have been.

Crude prices jumped about $2 a barrel or more within an hour of the OPEC+ and EIA announcements, extending by $6-$8 in all their gains since the start of the week. 

But oil wasn’t the only thing rallying Wednesday morning: The dollar and U.S.  bond yields were surging as well, recovering ground lost since last week, on stronger-than-expected employment indicators that suggested a robust September jobs report from the U.S. government on Friday. A rally in the dollar and bond yields typically weigh on commodity prices.

Also, President Joe Biden, in a statement issued by the White House, indicated that he would respond to the OPEC+ move by releasing even more oil from the U.S. Strategic Petroleum Reserve, or SPR. The Biden administration has already drawn SPR stockpiles down to their lowest since 1984 and seems game to do more, in a tit-for-tat with OPEC+.

New York-traded West Texas Intermediate settled up $1.24, or 1.4%, at $87.76 per barrel, off the session high of $88.42. WTI had fallen 12.5% in September and 24% in the third quarter.

Brent, the London-traded global benchmark for oil, settled up $1.57, or 1.7%, at $93.37 per barrel. Brent was down 11% last month and finished the July-Sept period lower by 22%.

“It’s going to be a very volatile market for oil over the next few weeks,” said John Kilduff, partner at New York energy hedge fund Again Capital. 

He said OPEC+ was obviously trying to seize back control of the market with the so-called deep cut. But unlike two years ago when it was absolutely transparent on where the reductions would come from, this time it has given no breakdown as yet. 

“It’s obvious that OPEC+ has grown increasingly arrogant since the days of the pandemic with its ability to move prices again, no thanks to the sanctions on Russia,” Kilduff said. “Well, not every trader is a fool to gullibly swallow all that the alliance spits out.”

Ed Moya, analyst at online trading platform OANDA, concurred with Kilduff that the market will likely see some extreme volatility in the near term.

“Oil should remain supported here…but upside will be capped well in advance of the $100 a barrel level,” Moya said. WTI’s peak for this year was around $130 while Brent’s was almost $140, both reached a fortnight after the Ukraine invasion and the imposition of Western sanctions on Russian energy exports.

OPEC+’s bluff — if it can be called that — is its insistence that the 2.0 million barrel per day cut it announced Wednesday was a substantial reduction, despite the alliance being some 3.583 million barrels short of its daily target for August, according to a Sept. 19 Reuters report of an OPEC+ internal document. Prior to that, Reuters reported the alliance fell short of its July production target by 2.892 million barrels daily.

Goldman Sachs, the Wall Street bank that’s often bullish on oil, estimated that under the best circumstances, the real OPEC+ cut would be about 500,000 barrels daily — not 2 million.

But Saudi Energy Minister Abdulaziz bin Salman (pictured above) seemed irked by suggestions that the OPEC+ cut would underwhelm. At a news conference on Wednesday, the minister, the dominating force at OPEC+ who typically silences any dissent to his plans, dismissed a question from Reuters that sought clarification on the cuts and called the Goldman Sachs estimate “false.”

“It's false that [the] real oil cut will be 0.5 mln bpd. Our estimates are 1.0-1.1 mln bpd,” AbS, as the minister is known in oil circles, declared, without any backing for his projections.

The White House indicated that the United States would hit back with more releases of oil from the U.S. emergency stockpile SPR — and find other measures as well — to counter the OPEC+ move. 

The Biden administration had worked hard in bringing pump prices of gasoline down from a record high of $5 a gallon in mid-June to average at $3.70 until last week and had no intent in seeing that disappear before the midterm elections due next month, White House insiders said.

“The President will continue to direct SPR releases as appropriate to protect American consumers and promote energy security, and he is directing the Secretary of Energy to explore any additional responsible actions to continue increasing domestic production in the immediate term,” the White House said.

The SPR balance currently stands at under 423 million barrels, the lowest since July 1984.

“Other measures” being weighed by the White House to keep gasoline prices low is a limit on the amount of fuel that can be exported out of the United States. 

An Energy Department spokesperson told Reuters on Tuesday that U.S. oil companies were raking in record high profits after Russia's invasion of Ukraine, instead of ensuring that American consumers and allies have a reliable fuel supply at a fair price. The administration is "going to continue to look at all tools available to protect Americans and uphold our commitments to our allies," the spokesperson said.

Oil Jumps on OPEC+ 'Deep Cut'; Biden Hints at More SPR Release
 

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Comments (24)
James Long
FauxNews Oct 07, 2022 3:13PM ET
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I wonder what the Saudis would do if the USA recalled all tech reps and logistics support for the high tech weapon systems we sold them ? Some say they would buy it from Russia or China . I say, Let them go ahead and buy that inferior ****** The USA doesn't make much anymore but we do know how to put weapons on target better than anyone else !!
Dee Mehta
DMFINANCE Oct 07, 2022 3:13PM ET
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What world u live in. We have a cluless administration and thats causing more harm than good. Foreign policy of usa is at its worst in its history. No tech or anything will help at this point. When world looses confidence in usa thats what happens. Saddened at current situation. Trump was the best
Ken Roth
Ken Roth Oct 06, 2022 9:31AM ET
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They are reducing the quota with 2 mill. But they are missing the current daily production quota by 3.5 million whats the reason for the priceincrease….
강히 건
강히 건 Oct 05, 2022 8:41PM ET
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OPEC DECISION boost Venezuela IRAN RELEASE
Barani Krishnan
Barani Krishnan Oct 05, 2022 6:18PM ET
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https://www.wsj.com/articles/u-s-plans-to-ease-venezuela-sanctions-enabling-chevron-to-pump-oil-11665005719
Warm Camp
Warm Camp Oct 05, 2022 6:18PM ET
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This is hardly material. Venezuelan oil was not excluded from the market. China bought it all, for very low price of course. In other words, China could lose a bit on this, though even this is unlikely, because Venezuelan dictator owes big money to China and sold all oil there in advance to service the debt.
Barani Krishnan
Barani Krishnan Oct 05, 2022 6:18PM ET
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Tsst tsst tsst. Don't get it, do you? It's all about timing and broader market perception, not what you and I think.
Stephen Fa
Stephen Fa Oct 05, 2022 6:18PM ET
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What a horrible moral decision by the Biden admin, trading human rights for lower oil prices before mid term election!
Barani Krishnan
Barani Krishnan Oct 05, 2022 6:18PM ET
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How about the horrible moral invasion of a nation's sovereignty by Putin, huh?
Warm Camp
Warm Camp Oct 05, 2022 6:18PM ET
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Barani Krishnan  Did you get this “broader market reaction” today? Continue dreaming about oil going down.
Brook Buck
Brook Buck Oct 05, 2022 5:13PM ET
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The SPR should be a last resort. Biden is draining it like an addict. It doesn't solve the problem.
Jorge Perassi
Jorge Perassi Oct 05, 2022 5:13PM ET
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what would be the previous step then?
Warm Camp
Warm Camp Oct 05, 2022 5:13PM ET
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Jorge Perassi  It could be producing more oil.
Jim Willis
Jim Willis Oct 05, 2022 5:13PM ET
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of course he is. it's all part of screwing over the U.S.
Barani Krishnan
Barani Krishnan Oct 05, 2022 5:13PM ET
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And if OPEC has its way, it will want another 3 centuries of holding the world at ransom over energy supplies. It's unbelievable how this one industry refuses to allow itself to be disrupted and spends much of its energy (no pun intended) on ensuring no viability is ever achieved for replacements.
Brad Albright
Brad Albright Oct 05, 2022 5:13PM ET
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Its unbelievable how many Americans are eager to consign future generations to the same dependencies.
David CA
ILoveQE Oct 05, 2022 5:09PM ET
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The constant release of the SPR and OPEC undercutting the SPR release will spell deep deep trouble for the United States. One might conclude, that this is intentional.
Popeye the Sailor
Popeye the Sailor Oct 05, 2022 5:09PM ET
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So big SPR will be useless in 20-25 years when transport will be electric in most civilized countries.
Warm Camp
Warm Camp Oct 05, 2022 5:03PM ET
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Meaningful SPR release will continue until the Election Day only. This day is the main reason for the releases, not OPEC actions. Once the elections are over, oil price will become unstoppable.
Réfugier Dans Son Pays
Réfugier Dans Son Pays Oct 05, 2022 4:32PM ET
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lift sanctions on iran and houthis
Brook Buck
Brook Buck Oct 05, 2022 4:32PM ET
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They'll have to when oil is $150
Zoran Alijevic
Zoran Alijevic Oct 05, 2022 4:32PM ET
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Negotiate Iran to sell all oil to US and EU , OPEC would be dead
Jorge Perassi
Jorge Perassi Oct 05, 2022 4:32PM ET
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bomb Iran, then the Saudis will fall in line
Warm Camp
Warm Camp Oct 05, 2022 4:32PM ET
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Zoran Alijevic  Perhaps, you know that Iran is an OPEC member, don’t you?
Historical Movies
Historical Movies Oct 05, 2022 4:25PM ET
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Spr is already down
Ernie Keebler
Ernie Keebler Oct 05, 2022 3:56PM ET
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Ah, do you remember Donald asked open to cut production when oil was tanking?   Thank the old T man for stsrting the oil inflation and reminding opec that cutting or talk of cutting supply works to raise prices
 
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