Oil inventories plunge and there is little help on the way except for some dirty oil from U.S. President Joe Biden’s favorite dictator in Venezuela. OK, maybe that’s not fair. Biden has a lot of favorite dictators. Now with signs that China is relaxing more COVID restrictions rolling out its fourth round of COVID vaccines and Europe getting ready to ban Russian oil, the supply-side realities are starting to sink in.
OPEC will, at the very least, roll over its previous production cuts. Some members are dropping hints that they could cut additional barrels. The base case of OPEC from previous cuts was 2 million barrel a day. Now, because they announced, it cancelled its Dec. 2 meeting of its Joint Technical Committee in Vienna to a virtual meeting. The expectations are it will not want to do anything out of the ordinary and just stay the course. It also might be a good time to call hotels in Vienna because you might be able to get a nice room for cheap. Yet, a few other sources predict a surprise cut of 1.5 million barrels to as much as 2 million barrels a day. Yet, those predictions, even if they are correct, must consider OPEC’s fuzzy math.
The bottom line is if any real barrels are going to come off the market more than likely it’s going to have to come from Saudi Arabia. Smaller producers that can barely pump their current quotas will not want to reduce production from current levels. More than likely, even if they’re instructed to cut, they’ll probably be able to continue production at current levels with an agreement to pay back those barrels in the future. And because the US has discouraged oil production in this country, it’s Saudi Arabia and Crown Prince Mohammed bin Salman that holds all the cards for a potentially huge move in the global oil market. If Bin Salman chooses to cut production, it will be a huge failure of diplomacy by the Biden administration and will raise questions about President Biden’s policies of trying to make Saudi Arabia a so-called pariah state.
The American Petroleum Institute (API) reported that crude oil supplies plunged by 7.85 million barrels last week despite the release of 1.4 million barrels from our depleted Strategic Petroleum Reserve. Now on the flip side of that, we did see an impressive build and distillate of supplies to the tune of 4.01 million barrels. Yet, even with that increase, supplies are still not in a very comfortable position heading into winter. Gasoline inventories also increased by 2.85 million barrels as refiners ramped up.
Yet, help is on the way in the form of dirty Venezuelan oil sold by the oppressive Dictator Maduro. Biden, who has falsely accused the U.S. energy industry of war profiteering and price gouging, turns to Venezuela. Bloomberg News reports: “Chevron Corp. is preparing to make its first shipment of Venezuelan crude to the U.S. by late December under a license issued by the Biden administration, according to a person familiar with the matter. Under the agreements, Chevron (NYSE:CVX) will take over operations at an oil upgrading facility where it will process about 1 million barrels of crude to be shipped to US refiners by late December, according to one source."
Biden continues to appease dictators. Venezuelan President Nicolás Maduro is a thug and his presidency has been under dispute since 2019. Biden, after failing to secure a deal for Iranian oil and propping up Iran’s supreme leader Ali Khamenei and its murderous President Ebrahim Raisi who allegedly threaten the families of their national soccer team and their families, now is propping up the dictator in Venezuela.
Yet, Venezuela has already been working with Iran. Reuters reports that Venezuelan oil exports flow using false documents, ships linked to Iran.
Reuters reports that three vessels identified by Reuters that were chartered by little-known companies to export Venezuelan oil and used false documents to conceal its origin, according to shipping documents and 11 sources with knowledge of the trade. Two of those tankers, including the Young Yong, were designated this month by U.S. authorities for violating sanctions on Iran, one of Venezuela’s closest allies.
Six shipping and oil trading specialists told Reuters the use of false documents to conceal cargoes originating in sanctioned countries, including Venezuela and Iran, has increased compliance risks for oil and trading companies, amid a proliferation of international sanctions. “It’s now becoming clear you cannot trust certificates of origin even when they come with official government documentation,” said Cari Stinebower, a U.S.-based partner with law firm Winston & Strawn, who advises oil and trading companies how to comply with sanctions. The Young Yong was one of several tankers named by the U.S. Treasury on Nov. 3 as part of a “smuggling network” that has used forged documentation to ship Iranian oil to finance Iran’s Revolutionary Guards.
Still, Biden wants to take a victory lap for gas prices that have recently plunged as U.S. refiners produced gas and products at record rates. He said, “Gas prices have fallen back to levels before Putin’s’ War.” Yet, not back to levels of Biden’s war on fossil fuels and the American oil worker. Biden tweeted that, “Gas prices have fallen to levels they were at prior to Putin’s invasion – down $1.50 a gallon since their summer peak. This is important breathing room for American families and meets a key commitment I made. We’ll continue to do everything we can to bring prices down even more.”
What he fails to tweet is the fact that gasoline prices usually fall after the summer driving season anyway. We switch over from the more expensive summertime blends to the less expensive wintertime blends. What he also doesn’t tell you is U.S. consumers have had to cut back on their gasoline purchases because of record inflation and because they have to choose between food and fuel. What Biden doesn’t tell you is that U.S. energy workers are losing their jobs and that his tougher regulations on the U.S. energy industry have caused one of the biggest drops in investment in U.S. energy in history.
What Biden doesn’t tell you is that this war happened on his watch. He doesn’t talk about his failed diplomacy with Saudi Arabia. Biden’s heavy-handed approach to Saudi Arabia is fostering closer ties between Saudi Arabia with our adversary China.
Reuters is reporting: “Saudi Arabia plans to host a Chinese-Arab summit on Dec. 9 attended by Chinese President Xi Jinping during his visit to the kingdom, three Arab diplomats in the region familiar with the plans said on Wednesday. Xi is scheduled to arrive in Riyadh on Dec. 7, two of the diplomats and the fourth source with direct knowledge of the visit said, on a trip that comes at a sensitive time for Saudi-U.S. relations that have been strained by a dispute over energy supplies and concerns over growing Chinese influence in the Middle East.”
We are also getting reports from CNBC that the White House is considering calling on Congress to AA cap on heating oil storage to build up our reserves over the winter. Of course, someone should tell the president that winter is already started.
WTI prices are back above 80 and Brent is back above 85. If we hold these levels, at the end of the day, it would signal a breakout of the recent downtrend and project the market sharply higher. Even with the reported API product builds, we’re seeing heating oil and RBOB gasoline futures showing some strength. This turnaround is one of the reasons we were recommending that people put on hedges and join the Thanksgiving traditional Turkey Drop.
Natural gas prices are also seeing some support. The weather forecast still seems to suggest that we’re going to see an increase in demand for heating. Expectations are that we’ll start to see more significant withdrawals in the coming weeks and even this week the draw, while not quite triple digits, should be down 93 bucks.