Crude oil prices have been obliterated since peaking at $130 per barrel, erasing their post-Ukraine invasion gains and then some. Due to global recession fears and subsequent waning international demand, the energy futures market has cratered. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, are sweating like an embezzler on audit day. According to reports, the group will host its first in-person meeting in more than two years on Oct. 5 in Vienna. Many expect it will cut output by more than one million barrels per day (bpd), the largest and most drastic move since the early days of the COVID-19 public health crisis. Does this mean a cup of Texas Tea could revisit $100? Ahead of this week’s powwow in Austria, the world is waiting with bated breath.
OPEC Saving Oil Prices
When Bloomberg and The Wall Street Journal dropped the news that OPEC and its friends would slash production levels, West Texas Intermediate (WTI) and Brent futures rallied to the moon on their respective exchanges.
The anticipated move does not include any of the additional voluntary cuts by individual members. It also does not consider the missed production targets of close to three million bpd in July amid sanctions and lower investment trends in several OPEC-linked markets.
Reportedly, Russia favors the decision, while Saudi Arabia has some reservations. Moscow would inevitably support a reduction since the strategy would elevate prices and keep its discounts intact. However, Riyadh may be hesitant to irk the White House, which has repeatedly begged the Kingdom and OPEC to expand capacity to address sky-high oil prices. The Saudis responded by tossing President Joe Biden a bone with a 100,000-bpd increase this past summer.
Four Days in October
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As Liberty Nation recently noted, the global energy market is in a fragile state. Despite the injection of supplies by the United States and its allies, conditions remained dysfunctional, as evident in the disconnect between the paper and spot prices. Indeed, worldwide supplies are extremely tight, and any development that would trim production or eat into inventories would jack up the price of crude. This was seen last month when political upheaval in Iraq and violence in Libya threatened operations, sending WTI and Brent prices hurtling toward $100 again.
The Biden administration will need to make some tough decisions in the coming days. With the president’s six-month one-million-barrel-a-day release of the Strategic Petroleum Reserve (SPR) coming to an end, will US officials impose an extension and continue to lower the nation’s emergency reserves? The federal government already unofficially extended Biden’s actions by injecting millions of barrels of oil for November deliveries. On the other hand, if it chooses not to, the global marketplace will witness a deficit of more than two million bpd – and counting.
“That means that the price of oil more than likely will head back above $100 a barrel and there will be little that the Biden administration at that point can do to stop that,” warned Phil Flynn, a market strategist and author of The Energy Report. “The premature releases from US strategic petroleum reserve have left the country extremely vulnerable, especially at a time when the threat to global supply is higher than it’s been maybe ever.”
SPR stocks have plunged to 422.5 million barrels, down from about 638 million when Biden took office.
Recent developments could also lift gasoline prices. For 14 consecutive days, the national average for a gallon of gas has climbed nearly 3% to $3.80, according to the American Automobile Association (AAA). They are higher than a month ago when the administration celebrated lesser pain at the pump. Diesel is also inching closer to $5 a gallon. The culprit has been strengthening demand, with consumption topping 8.82 million bpd for the week ending Sept. 23, up from 8.59 million at the end of August, according to the Energy Information Administration (EIA). Supplies are also struggling to keep up with demand as several refineries are going through maintenance, limited pipeline capacity, and rising crude oil prices.
‘The Old Oil Order’
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Jeff Currie, Goldman Sachs’ global head of commodities research, recently appeared on CNBC, and his comments about crude oil and renewables went viral on Twitter. He said, “At the end of last year, overall fossil fuels represented 81% of energy consumption. Ten years ago, they were at 82%. [So] $3.8 trillion of investment in renewables moved fossil fuels from 82% to 81% of the overall energy consumption.”
His numbers might be off a couple of percentage points, but Currie’s remarks are generally correct. Indeed, all this money that went to the taxpayer-funded green economy – and the myriad of unintended consequences – has led to the world’s morose situation today. Consumers are dealing with surging energy costs, and all the money they have been forced to dump into ineffective and inefficient solar and wind technology has been a sunk cost. Renewables are the stuff latte-sipping progressives’ dreams are made of, while fossil fuels are the practical resources to keep the lights on and stay warm in the winter.
