It’s the most treacherous time of the year. With the holiday greetings and big OPEC meetings, when trade starts to fall. It’s the most treacherous time of the year. It’s the most treacherous season of all. All the traders are costing, while their turkeys are roasting, as liquidity goes out in the snow. There’ll be scary trade stories and tales of the glories of selloffs long, long ago. It is the most treacherous week of them all. Thanksgiving holiday week has been one of the epic selloffs in Oil in recent years caused by a multitude of reasons. Whether it was a new strain of Covid or Biden tapping the SPR or just a crash for the sake of crashing. History tells us to be on guard.
And while this year may be different, it’s best to keep up your guard because the history of this week is one of major volatility. It does seem that this week the oil market can’t seem to make up its mind and has traded since we reopened the market on both sides have unchanged. While the geopolitical risks factors and the supply side favor the upside, concerns about OPEC compliance and the incoming Trump energy agenda may provide some downside risks.
A report that Israel’s PM Netanyahu approves Lebanon ceasefire deal in principle could be a bearish catalyst, yet we must see more detail as they become available. Last week the world was stunned as Russia launched supersonic missiles. Newsweek reported that NATO and Ukrainian officials are set to take part in emergency talks on Tuesday after Russia launched a hypersonic missile attack on the central Ukrainian city of Dnipro. The attack, which hit a military facility on Thursday, marks a significant escalation in the 33-month-long conflict. It has intensified fears that the war is entering a “decisive phase,” according to Polish Prime Minister Donald Tusk, who described the situation as taking on “very dramatic dimensions.” The assault, which utilized the experimental Oreshnik hypersonic missile, prompted immediate security measures in Ukraine’s capital, Kyiv, including the cancellation of a session of Ukraine’s parliament.
Zero Hedge reported that, “According to the New York Times (NYSE:NYT), US and European officials have discussed a range of options they believe will deter Russia from taking more Ukrainian territory, including providing Kiev with nuclear weapons. The outlet reports that Western officials believe the Kremlin will not significantly escalate the war before Donald Trump is sworn in as President in January.
On the positive side we are seeing the price of oil get support from strong demand. Crack spreads have been improving and reports that China’s demand may kick in a little bit could provide some underlying support. Reuters reported that Chinese crude imports are likely to be further lifted by an additional import quota of at least 5.84 million metric tons (116,800 bpd) issued to independent refiners for cargoes arriving into next year, people familiar with the situation said on Monday.
Another bearish factor is President Trump and his drill baby drill philosophy perhaps becoming a reality. Reuters is reporting that, “Donald Trump’s transition team is putting together a wide-ranging energy package to roll out within days of his taking office that would approve export permits for new liquefied natural gas (LNG) projects and increase oil drilling off the US coast and on federal lands, according to two sources familiar with the plans. Trump, plans to repeal some of his Democratic predecessor’s key climate legislation and regulations, such as tax credits for electric vehicles and new clean power plant standards that aim to phase out coal and natural gas, the sources said.
An early priority would be lifting Joe Biden’s election-year pause on new export permits for LNG and moving swiftly to approve pending permits, the sources said. Trump would also look to expedite drilling permits on federal lands and quickly reopen five-year drilling plans off the U.S. coast to include more lease sales, the sources said according to Reuters.
Another downside risk could be cracks in the OPEC’s commitment to extend production cuts. The market got a boost last week on reports that OPEC plus Russia were all in on cutting back production, yet it appears that Iran is complaining about being restricted on their production. At the same time there are reports that the United Arab Emirates may be cheating on their current production.
S&P Global is reporting that, “UAE crude oil production is coming under increasing scrutiny from barrel counters, some of whom are questioning official data released by the key OPEC member. Data shows that despite OPEC+ agreeing production cuts that have committed the UAE to an output quota of 2.912 million b/d since mid-2023, the Gulf state’s shipborne crude exports have been consistently above 3 million b/d, or sometimes significantly higher, averaging 3.60 million b/d from January to October 2024.
The elevated export figures could indicate the UAE is pumping well in excess of its quota, as they only capture barrels shipped to the international market and do not include crude volumes processed in domestic refineries. Its main refinery is Abu Dhabi National Oil Co.’s 837,000 b/d capacity Ruwais complex, while smaller facilities are located in the eastern port of Fujairah. As a result, some barrel counters estimate that the UAE could be as much as 300,000 to 400,000 b/d above its OPEC+ production cap, though not all agree, casting some confusion in the market according to S&P Global.
The UAE’s cheating and Iranians reluctance to go along with a production cut extension could cause the market some concern. If the OPEC plus deal falls apart then we could see another significant sell off in oil.
Obviously, I’m trying to get prepared for what could be another big sell off in the markets just because it is the holiday weekend. Overall supply and demand fundamentals continue to be tight around the globe and there isn’t a lot of room for error yet we have to respect the fact that Thanksgiving is a treacherous time.
Natural Gas Futures is surging again not only in concerns of tight natural gas supplies in Europe but cold weather here in the United States. The Fox Weather Channel reports that Northeast winter storm threatens Thanksgiving travel. Travel is kicking into high gear across the U.S. this week as tens of millions of people prepare to head out for the Thanksgiving holiday. And while the FOX Forecast Center expects some potential disruptions at the beginning and toward the middle of the week, bigger issues may arise for those journeys back home – especially in the Northeast.
Another storm is slamming the West with heavy rain and mountain snow, with impacts expected along the Interstate 5 corridor from California through Oregon and Washington. A fast-moving storm is bringing winter weather to the Upper Midwest. At the end of the week, a winter storm is expected to slow post-Thanksgiving travel in the Northeast. On top of that there are some outlying forecasts that December may actually be one of the coldest winters we’ve had in many years while those forecasts are still on the outlier, more forecasters are joining in the longer term colder for longer.