Luongo: Davos Runs Into The OPEC+ Buzzsaw

by Tyler Durden

Friday, Apr 07, 2023 – 09:00 AM

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

Every Wednesday and Sunday morning I record a private podcast for my patrons. I cover gold, silver, oil, the Dow Jones and Bitcoin at a minimum. This past Sunday I mentioned during my oil commentary I thought the six-month long weakness in oil was overdone.

Last week’s price action clearly agreed with me as the futures markets finally saw some position squaring into the quarterly close on Friday.

At least that’s what I thought at the time. It turns out that there were a lot of people who must have known that OPEC+ was going to announce a surprise production cut while I was yammering into a microphone Sunday morning. Because they bid oil up into the quarterly close using the tailwinds of strong closes across the entire ‘tangible assets’ space — gold, stocks, US treasuries, industrial metals, etc. — as cover.

The ‘deflation trade’ hit its peak when Brent crude futures bottomed near $70 per barrel on March 19th.

Thanks to OPEC+’s announcement Brent Crude gapped open at ~$85 per barrel. West Texas Intermediate (WTI) moved above $80 and the Brent/WTI spread is trending towards $3.

It was $8+ a few months ago. This is very good news for US producers and exporters. The oil market had a fundamental supply and demand mismatch. Back in January even the IEA was talking nearly a 1 million bbl/day mismatch between supply growth (<1 million bbls/day) and demand growth (>1.9 million bbls/day). And that was with a recession on everyone’s lips to start the year and China locked down.

Today their outlook more sanguine but mostly on disruption due to the embargoes against Russian oil. That disruption, like all things, is temporary. Transport costs will go up due to rising inefficiencies but the structural demand will stay the same.

This supports, not undermines, higher oil prices.

Goldman Sachs, whose statements one should always salt to taste, has been screaming that the action in the oil pits has defied reason for months. As long-time readers well know I’ve been complaining that this move down in oil into the $70’s was complete nonsense, a product of futures manipulation through headlines and always dubious inventory data.

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Luongo: Davos Runs Into The OPEC+ Buzzsaw

Luongo: Davos Runs Into The OPEC+ Buzzsaw

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