by Barani Krishnan
Investing.com – The smart thing the Saudis can do at today’s new OPEC + meeting is to hand over their increased production to the Emiratis and convince the rest of the 21 countries in the alliance not to push for big production either, until I’m older. The impact of the Covid Delta variant unfolds in the coming months.
I say “smart” because the overall effect of OPEC + actions since the beginning of July seems pretty silly.
Like my colleague Andy Hecht on Friday, when President Joe Biden took office, he delivered a gift to oil drillers outside the United States by suppressing American production through his green energy policy. Having covered the industry for over 20 years, I will say that such blessings are not easy.
OPEC + rejoiced at the emasculation of US oil and has made the most of it.
But with Saudi Arabia publicly clashing with the United Arab Emirates over the Emiratis’ attempt to extract more barrels than it thought for August onwards, OPEC + appeared to be “doing everything possible to shoot itself in the foot,” Hecht said. Those with a lot of oil will agree: The silly fight between Saudi Arabia and the United Arab Emirates has cost OPEC more than $ 5 a barrel in the last ten days, and American crude went from a seven-year high of $ 76.98 on July 6 to a close of $ 71.81 on July 16.
According to news reports on Saturday, the 23-nation OPEC +, which groups the 13 members of the Saudi-led Organization of the Petroleum Exporting Countries with 10 other Russian-led oil producers, has reached a compromise on the UAE demand.
Today’s Zoom meeting will likely agree to set Abu Dhabi’s benchmark production at 3.65 million barrels per day as of April 2022, down from 3.168 million, an OPEC + source said. Reuters.
If true, that effectively increases the UAE’s production potential by 482,000 barrels a day for the next nine months. It is not yet known what OPEC + will agree to for Abu Dhabi production in August onwards. More importantly, no one can guess what the alliance’s total production will be starting next month.
Before the dispute between Saudi Arabia and the United Arab Emirates, OPEC + had planned an increase of 400,000 barrels a day through December, or a net addition of 2 million barrels over the next five months. That is still below an estimated 3.5 million barrels of increased demand forecast for the period. But that demand estimate was also made before the Delta-induced Covid blasts we’ve seen in recent weeks.
In short, there is no certainty about what the demand for oil will be over the next six months, although it is expected to be substantial. Similarly, it is not known what the wave of the pandemic will be from fall to winter, although it could also be substantial. And OPEC + has to time both to determine how many barrels it should release between now and Christmas.
Usually, it is the Saudis, the Russians and the Emiratis who decide on all the important matters within the alliance; The rest are expected to register their yes and move on. However, as the events of the past two weeks have shown, the other 20 countries may no longer be the jostling they once were. Case in point: Iraq, which wants its production baseline to be revised up as well, as does the UAE.
It is not known whether Iraqi delegates to OPEC + continue to push for more barrels. What the market fears is that a pact between Saudi Arabia and the United Arab Emirates does not necessarily mean a consensus on the production of the entire alliance.
“Other producers will undoubtedly seek similar treatment and possibly prolong deliberations ahead of the August ministerial meeting,” RBC Capital said in a note issued Friday.
John Kilduff, founding partner of New York Again Capital’s energy hedge fund, agreed.
“This certainly opens up a can of worms when it comes to OPEC production,” Kilduff told Investing.com, referring to the compromise between Saudi Arabia and the United Arab Emirates.
“Unless the Saudis can point to the new Delta variant Covid outbreaks and say ‘hey, we should all keep our production low so we don’t lose what we’ve gained,’ I think oil prices will remain under pressure.”
In the United States, which has led global vaccination against the virus, Covid cases are on the rise again, exacerbated by the more transmissible Delta variant.
Biden said Friday that his administration was bracing for an “unvaccinated pandemic,” as the latest outbreaks appeared to primarily involve those who had resisted vaccination for political and other reasons.
Dr. Francis Collins, director of the US National Institutes of Health, said earlier in the week that the United States was “wasting time” in the race to fully vaccinate more than half the population before the end of the summer. . “The Delta variant is spreading, people are dying, we really can’t wait for things to get more rational,” Collins said.
Vaccines have been available to most Americans for months, but still only 48.2% of the country is fully vaccinated, according to the US Centers for Disease Control and Prevention, and the rate of new vaccines is declining.
Meanwhile, case rates have risen dramatically. In 47 of the 50 US states, the rate of new cases in the past week is at least 10% higher than the previous week, according to data from Johns Hopkins University. Of those, 35 states have seen increases of more than 50%.
Regardless of what OPEC + decides, it must be smart.
Oil price summary
Oil prices had their worst week in months, even after crude prices rose on Friday, as the market absorbed news that the UAE had an agreement with OPEC + that at least one hedge fund said he ‘could open a can of worms’ at the cartel. exit.
The price in New York, the benchmark for US oil, made a final trade before the weekend of $ 71.46 after closing Friday’s session with a rise of 16 cents, or 0.2%, to $ 71.81 per barrel. However, during the week, the WTI lost $ 2.75 or 3.7%. That was the biggest weekly loss for US crude since the week ending March 14.
The price in London, the global benchmark for oil, made a final trade before the weekend of $ 73.14 after rising 12 cents, or 0.2%, to end on Friday at $ 73.59. . During the week, Brent lost $ 1.96, or 2.6%, for its steepest weekly decline since the week through May 14.
Energy markets calendar ahead
Monday July 19
Cushing surveyor’s inventory data Genscape
Tuesday July 20
weekly report on oil reserves.
Wednesday July 21
EIA weekly report on
EIA weekly report on
EIA weekly report on
Thursday July 22
EIA weekly report on
Friday July 23
Baker Hughes Weekly Survey of
Gold price and market overview
Gold posted a fourth consecutive weekly gain despite settling lower on Friday. While the yellow metal returned to the crucial support at $ 1,800, it certainly looks like it is taking its time to progress in that channel.
The New York Comex benchmark index made a final trade before the weekend of $ 1,812.60, after settling at $ 1,815, down $ 14 or 0.8%. On the week, it was up $ 4.40 or 0.2%.
August gold has gained just over $ 45, or 2.6%, since its last negative weekly close five weeks ago, when it also fell to a two-month low of $ 1,761.20.
However, there was no certainty about how much of an impact current inflation trends in the United States will have on gold, which is generally qualified as a hedge against rising pressure prices.
Federal Reserve Chairman Jerome Powell’s semi-annual testimony before Congress this week showed the central bank’s stubbornness in wanting to keep its $ 120 billion in monthly bond purchases and a super-low interest rate of zero to a quarter. percent for at least another year. To calm his audience of American legislators, Powell recited his mantra on US inflation: which was “temporarily higher” for now, but is set to decline.
While gold was up nearly 1% when Powell made those comments on Wednesday, he was unable to keep much of those gains for Friday as it soared on a strong US report for June.
“Fed Chairman Powell’s testimony to Congress was not reason enough for gold to rise despite his dovish promises,” said Ed Moya, an analyst at OANDA New York.
Gold could have a harder time gaining traction next week as Fed officials enter their typical speeches lockdown period ahead of the Federal Open Market Committee’s monthly deliberation on monetary policy.
“Gold is likely to remain in choppy trade until we pass the July 28 FOMC decision,” Moya said.
Disclaimer: Barani Krishnan uses a variety of points of view outside his own to bring diversity to his analysis of any market. For the sake of neutrality, he sometimes presents conflicting views and market fluctuations. He does not occupy a position in the commodities and securities he writes about.