© Reuters
By Barani Krishnan
Investing.com – Prince Abdulaziz bin Salman lamented a year ago that ‘psychological factors’ and ‘extremely negative expectations’ are hampering the oil market despite ‘very limited impact on global oil demand’. But this week, it was the Saudi oil minister who tried to limit the market’s expectations for oil.
Asked why he again withheld his kingdom and 22 others in OPEC + from taking a significant production step from April, Abdulaziz points to the new Covid-19 restrictions in Milan, Italy, which mark the year-end pandemic nightmare ago that wiped out a fifth of the global. oil consumption. As the world now bursts with optimism about recovery in everything, the prince, specifically after the demand for oil, said: ‘I will believe it when I see it.’
It is of course interesting how the virus makes one of the most complacent men in the oil industry kneel. Not too long ago, the prince oil bears, in Hollywood-dirty Harry style, no less dared to make “Make my day”. He issued this warning in mid-September, only to swallow a 15% price cut that took place a month and a half later in silence (this would take Pfizer’s breakthrough in November to restore his wounded pride and abandoning oil prices on a path that was unmistakably higher).
What is more interesting and consequent is that the market Abdulaziz is again unbelieving – although the unbelief is working in his favor this time. Minutes after the OPEC + communication was out on Thursday, oil prices rose by 5%. They barely dropped (okay, they dropped by 1%) at the end.
Despite the recent rally in crude oil, the Saudi oil minister’s reluctance to increase production is noteworthy. The global recovery in fuel demand was lukewarm, despite ten months of OPEC + cuts that drained much of the oil glut a year ago and brought supplies to the so-called OECD, or developed countries, to what the operate ‘normal’ five- name. year levels.
Internal predictions from OPEC – the 13-member Saudi-led organization of the petroleum exporting countries, minus its ten allies run by Russia, which would make up the enlarged group OPEC + – are that the oil market could absorb 1.4 million barrels a day .
However, Abdulaziz chose to err on the side of caution and dismiss his own advisers in OPEC, who called for greater demand for demand and rapid economic recovery from Covid-19 vaccinations. If we were to heed the minister’s warning to oil bears six months ago, we should also heed his inner fears about the question.
Hedge funds and other market speculators do not like to hear advice that is inconsistent with their positions. And so the oil show continues with the same disaster we have seen since the end of October, which has added an average of 5% per week over the past 18 weeks.
In my 25 years of observing the oil market – or, for that matter, any market – I realized one thing: speculators can never have enough of a good thing. Once they are on the roll, they will not stop until they or what they are doing has destroyed themselves or both.
The problem is that oil, unlike any other asset, has major consequences for the world economy because it is the source that literally drives and moves the world. There are serious consequences of too high or low prices, and history is full of periods of both.
The impact on oil of the Arab Embargo in 1973 and the war in Iraq in 1990 are well documented. Let’s look at the 2000 years for today’s context – and to include the rise of fund managers in commodities.
We saw how $ 147 a barrel helped cause the financial crisis. In later years, stubbornness at $ 100 a barrel and above helped create the shale revolution (some call it the monster) that dropped the market to $ 25 by 2016. We also saw the madness of minus 40 per barrel at the height of the Covid. -19 and how it can never be sustained in a real world – in the case of the damage that has since been done to the shale and American oil production as a whole.
Now, in just over four months, we have seen an 85% period in an economy barely emerging from the forest of the pandemic. At the rate we are going, some Wall Street banks are whispering a return to three-digit rates. Let’s stop pretending that there is a limit to the greed of oil bulls – or for that matter, oil bears. The real problem, however, is the pump prices of fuel.
The US economy could be more than $ 3 per liter – after which US petrol pushes – in a situation like stagflation, where price pressures are growing incredibly faster than GDP and jobs. High oil prices have done this before, and they can do it again.
Jobs are the first to go into a recession and usually the last to return to a recovery (the Obama years are proof). came above expectation. Despite this, the unemployment rate barely changed and remained at 6.2%.
President Joe Biden’s $ 1.9 billion relief plan approved on Saturday could be a remedy. But although the stimulus was on hand earlier this week, the Federal Reserve said the country is unlikely or soon to get a maximum job. That is why Abdulaziz is rightly concerned about the demand for oil.
But the Saudi oil minister also maintained a certain amount of audacity when he predicted this week that shale will never be a problem for OPEC again. “Drill, baby, drill ‘is over forever,” the prince said in an interview with Bloomberg, referring to the phrase often used to describe productive activity in American shale spots.
At a glance, he looks right. Shale production is declining by a third of their record high in 2020, and active drilling for oil has risen by less than 50 this year. Rigs is now at 310 against the peak of 683 in March 2020. But the rig also bounced back from a low in August of 172. Abdulaziz makes a calculated bet that American drillers would like to make a profit with fewer barrels and not the market like previously.
As Bloomberg noted, the Saudis often underestimated the shale, producing more year after year than most expected. From a low of less than 7 million barrels per day in 2007, total U.S. petroleum production more than doubled to a record nearly 18 million barrels per day at the beginning of 2020, forcing OPEC to give up market share.
There is also too much being made of Biden’s green energy agenda and the Armageddon is presumably for shale. The president froze the Keystone pipeline project on his first day in office (a decision I disagree with). Yet he did not completely ban hydraulic fracturing – contrary to the false claims of many people (who like to keep the story because it helps the story for higher oil prices).
What Biden has largely done is freeze new leases for drilling in public lands and foreign waters. According to federal data, only 5% of U.S. crude oil is produced from wells in these areas. Fractionation on all private land meanwhile continues without any hindrance. To drill or not to drill actually comes down to pure economics. So, crude oil above $ 65 could do more for shale than the Saudi minister and oil bulls think.
On the side of precious metals, gold experiences the fate of oil. Gold futures listed a third weekly loss after falling to its lowest in April. At about $ 1,700, the yellow metal declined 10% year-on-year and 19% off the August record high of nearly $ 2,090.
Already with a slow collapse, gold re-emerged in a stock market this week, despite its so-called status as an inflation hedge. The looming Senate clause expected for President Joe Biden’s $ 1.9 billion Covid-19 emergency relief bill, which should give the U.S. a bigger budget deficit and higher debt-to-GDP – all good for gold – is also ignored . Gold’s tumble this week has been driven by the same phenomenon of the past two weeks – rising and the.
Yields and the setback rose again this week after Federal Reserve Chairman Jerome Powell said the central bank was unlikely to intensify bond purchases to allay fears of a sudden rise in US economy inflation from the Covid-19.
While gold has been touted for decades and used as a hedge against inflation, the quality has been played out by markets for months. It remains to be seen whether Biden’s stimulus bill will give him the chance next week.
Oil price and market collection
The trade in New York, the benchmark for US crude oil, made a final trade of $ 66.26 on Friday. It officially settled the session at $ 66.09, $ 2.26, or 3.5%, on the day. For the week, WTI rose nearly 7.5%. It also reached a 13-month high of $ 66.40.
Trading in London, the global benchmark for oil, made a final trade of $ 69.54 a barrel on Friday. This officially increased the session to $ 69.36, up $ 2.62 or 4% on the day. For the week, it was almost 5% higher and also reached a 13-month high of $ 69.57.
New York traders made a final trade of $ 2,075 a barrel on Friday. It had previously risen to $ 2,065 per liter and closed the first week above the $ 1-liter range since the $ 2,047 settlement for the week ended May 10, 2019. For the week, RBOB gasoline rose 10% and to nearly 47 % increased -date rally.
Energy calendar in advance
Monday 8 March
Private Cushing Stocks
Tuesday 9 March
weekly report on oil supplies.
Wednesday 10 March
EIA weekly report on
EIA weekly report on
EIA weekly report on
Thursday 11 March
EIA weekly report on
Friday 12 March
Baker Hughes weekly survey on
Gold price and market collection
on New York’s Comex on Friday made a final trade of $ 1,698. This officially closed the session at $ 1.10 or less than 0.1% at $ 1,701.80 per ounce. For the week, however, it fell by 1.5%, extending last week’s drop by 2.7% and the previous week’s drop of 2.5%. During Friday’s session, it dropped to $ 1,684.05 – the lowest price since April 2020 for a standard gold contract.
, reflecting real-time trading in bullying, rose to $ 1,699.92, up $ 2.49 or 0.2% higher. For the week, it lost 1.9%, extending last week’s decline by 2.7% and the previous week’s decline by 2.3%. Hedge funds and other money managers sometimes rely more on the spot price than futures contracts to determine the direction in gold.
Disclaimer: Barani Krishnan does not hold a position in the commodities and securities he writes about.