OPEC Move Keeps Prices Up As Rudderless Washington Releases More SPR Inventory

Meanwhile, Ron Insana outlines a strategy to cripple OPEC: File Image/Pixabay

Unsurprisingly in a week dominated by the Organization of the Petroleum Exporting Countries (OPEC) mandating a 2 million barrels per day (bpd) output cut, oil on Friday posted its biggest weekly gain since early March, with Brent edging closer back to the $100 mark as supply fears reached fever pitch.

West Texas Intermediate for November delivery rose $4.19 to settle at $92.64 per barrel, while Brent for December settlement gained $3.50 to settle at $97.92 per barrel.

Both benchmarks posted their second straight weekly gains and their biggest weekly percentage gains since March this week, with Brent up about 11 percent and WTI 17 percent higher.

Bloomberg noted that the OPEC cuts "leave the market vulnerable ahead of impending European sanctions on Russian crude and the likely return of Chinese demand at year-end," and time spreads were signalling supply shortage even before the cartel announced its production reduction - the cumulative effect being that demand fears ( which were stoked by inflationary circumstances and up until recently had dominated crude trading behaviour) are now firmly on the back burner.

The irony is that the U.S. oil rig count, an early indicator of future production, fell by two this week to 602, according to Baker Hughes Co, due to high inflation; Gelber & Associates pointed  out that "Oil futures prices are managing to gain upside traction even though widespread inflation across the U.S. and Europe is threatening the potential for a global recession where demand will likely take a sizeable hit."

It didn't help that Washington, seemingly rudderless under the Joe Biden administration, on Friday took a course of action against OPEC that in the past has had zero effect on the high prices it claims to be devoted to taming: it announced plans to siphon yet more oil from the Strategic Petroleum Reserve.

Specifically, 180 million barrels will be distributed, and on Friday eight companies were awarded a total of 10.15 million barrels, I million barrels of which could be offset for export) of low-sulfur oil.

Successful bidders included Marathon Petroleum, Atlantic Trading & Marketing Inc., Equinor Marketing & Trading, Macquarie Commodities Trading US LLC, Motiva Enterprises LLC, Phillips 66, Shell Trading (US) Company, and Valero Marketing and Supply Company.

Much more forceful in what to do about OPEC was Ron Insana, senior advisor at Schroders, who on Friday argued that nuclear power should assist in meeting the U.S.'s energy needs and that Washington should "offer price supports to the entire oil and gas industry, beyond the subsidies already offered, to rapidly boost production in some areas where exploration and production have slowed."

Insana went on to note that "With the imposition of a multiyear price floor, the U.S. could support domestic crude prices at, let's say, $65 per barrel: that's high enough to encourage existing fracking efforts while also encouraging additional production, yet it's low enough to help pull the rug out from under a former ally that has shown its allegiance to Moscow (we do this for all manner of commodity producers, by the way)."

He added that a more rapid addition of U.S. oil and natural gas supplies "would pressure global energy prices greatly and hurt the bottom lines of both Saudi Arabia and Russia."