Reuters reported that -A single bank sold a large volume of U.S. oil futures contracts in early afternoon trading on Wednesday, a person with direct knowledge of the matter said, pushing prices down more than 1% within minutes and causing traders to scramble to decipher the reason.
The sale, just hours ahead of an OPEC+ virtual meeting at which the group is expected to extend supply cuts through the end of the first quarter, left traders scrambling to make sense of the rationale for the transaction.
The bank sold 4,000 lots of U.S. West Texas Intermediate crude oil futures CLc1 in a single block at $69.21 a barrel around 1 p.m. EST (1800 GMT), the person said. The buyer then sold the contracts immediately afterwards, putting pressure on prices, they added.
I think once again you must look at the oil market and understand that there seems to be more situations ahead of major meetings or breaking news where we start to see these sharp moves sometimes predicated on the headlines and sometimes just based upon rumors.
There were rumors on Wednesday floating around that the UAE and Saudi Arabia were having a showdown over the United Arab Emirates over production+. It was also reported that others in the cartel wanted to lift production earlier. None of these rumors were confirmed. The question is whether the bank had some inside information or were they just taking a flyer on breaking the market.
This is what we do know as the OPEC meeting is happening. Pretty much as expected it looks like OPEC plus has agreed to delay the oil output increase by three months.
The plan at this point is to unwind cuts from April 25 until September 2026 initially the market seems a bit disappointed with this conclusion perhaps hoping for an additional production cut.
The gradual increase by pack probably comes along with some promises from OPEC over producers to continue to make compensation cuts.
The biggest concern in the room of course has been the United Arab Emirates which continues to pump well above their quota. Argus Media is reporting that This would reduce the amount of oil being introduced to the market every month.
But the return of this output should, in theory, be more than offset by members who have pledged to compensate for exceeding their production targets this year. Argus calculations show that of the eight countries, only Algeria does not have any overproduction to compensate for. Iraq has the most, followed by Kazakhstan, Russia and Gabon.
And while there seems to be a little bit of disappointment with the aftermath of this meeting it’s actually quite bullish when you look at the supply and demand situation in the world this probably will ensure that we will have a supply deficit later this winter the supply surplus that was created in part by slow demand in China should evaporate as Chinas oil demand is improving and we’re seeing demand in India go through the roof on top of that reports of more cold weather in Europe should keep the demand high as they try to keep their people warm.
Bruegel wrote that “Energy prices are higher in the European Union than in most other industrialized economies, presenting a fundamental competitiveness challenge. The price disparity stems from the EU’s reliance on imported fossil fuels, contrasting with the United States, which is a net exporter of energy. In 2024, EU gas wholesale prices were on average nearly five times those in the US. Average EU industrial electricity prices were roughly two and a half times higher than in the US.”
Which of course means if you get a cold winter in Europe not only will they have a hard time keeping the lights on they’re also going to have a very difficult time with their economy.
Russia is on board even as Reuters reports that “Igor Sechin, the head of Russia’s largest oil producer Rosneft, said on Thursday that the OPEC+ group’s decisions to reduce oil output in 2016 and 2020 helped the U.S. shale industry and made it a leading global energy exporter. Sechin has previously expressed skepticism about Russia’s cooperation with the OPEC, saying that the United States benefited most from the deal, struck in 2016.”
Natural gas is also bouncing back as the predictions of the late December warm up are becoming more questionable.
Fox Weather reported that Millions of people from the Great Lakes to the mid-Atlantic and Northeast are facing another blast of winter weather as a powerful winter storm races across the U.S. bringing life-threatening snow squalls and near-blizzard conditions to regions that were just slammed by the first significant lake-effect snowstorm of the season. The storm is even bringing some frozen precipitation to the heavily traveled Interstate 95 corridor.