Review Of Oil Trading Markets - 2024 - 3rd to 7th June

OPEC+ extended its production cuts as it sought to bolster a fragile market, but also set a date to return some crude oil production back to the market later this year, which investors?didn’t really like too much at all.?

The agreement reached in Riyadh on Sunday exceeds market expectations in some ways, extending so-called?"voluntary" cuts from key members including Saudi Arabia and Russia well into 2025.

However, it also begins rolling back those supply reductions in October 2024, earlier than some OPEC-watchers had assumed and that part of the agreement is what disturbed traders most. When Monday morning came regardless of extended production cuts going into 2025 oil prices momentarily dithered then slid lower.?

From a common sense point of view it was all a bit of a muddle but the trade saw it pretty clearly and sold the markets aggressively…. the rationale being that if the markets are long now, adding more oil in October just negates the expected Summer demand factor.?

Whether you saw the 2025 element as the bullish factor didn’t seem to matter initially as ICE Brent looked seriously on the ropes on Thursday having moved sub $76.75 at one stage (from a Monday opening of 81.14) and looking weaker by the hour .

However, on Friday morning OPEC+ produced a neat psychological trick by chipping in with a sentence along the lines that although the agreement extends into 2025 with an easing of the cuts beginning October 2024 changes could be made to the arrangement at very short notice at anytime.?

Machiavelli couldn’t have delivered such a crushing blow to those who sold the market off on Wednesday and Thursday if he tried!

This well timed OPEC+ comment took the market by the ankles and turned it upside down with prices flying higher again, panic ensued and ICE Brent raced back up to $80 a barrel in short order with short sellers sitting in the midst of a smell of burnt fingers, although in the end ICE Brent closed teasingly on Friday night a tad below $80 a barrel!

It certainly wasn’t lost on anybody that Russia quickly chipped in with a comment supporting OPEC making “spot” changes to the agreement when necessary and promising to faithfully follow Opec+ quota limits and cut back their own production to compensate for their Winter oversupply “error”.

The situation has become farcical, Opec can read the market like a book and whilst market prices may still come under pressure in the coming weeks if US gasoline demand fails to materialise there’s always a good bullish story involving an uptick in the Chinese manufacturing figures that can fill the gap!

Meanwhile Global tensions?are slowly rising, and expanding further afield in relation to the Russia-Ukraine war, with a number of new developments that build on other East-West conflict developments over the past few months.

France agreed (on D-Day) to give Mirage fighter jets to Ukraine by the end of the year, but in the shadows and given low priority reporting four Russian warships are sailing for Cuba and will dock next week in what is being interpreted as a message to Washington….and for those old stagers who lived through the 1960’s this isn’t good news.?

Back then Cuba was used as a political toy and WW3 almost began after?Nikita Sergeyevich Khrushchev President of Russia?and John Fitzgerald Kennedy President of the United States went into a metaphorical arm wrestling contest in what became known as the Cuban Missile Crisis, lasting?from the16th?to?the?28th October 1962. This?confrontation is widely considered the closest?the Cold War came?to escalating into full-scale nuclear war.

No event during the Cold War generated more interest and scholarly attention…. It has become perhaps the most studied international confrontation of the 20th century.?

According to the editors of the Cuban Missile Crisis of October 1962 National Security archive the United States looked down “the gun barrel of nuclear war” a statement which came from JFK’s speechwriter Theodore Sorensen.

We must sincerely hope the visit of these ships is purely a goodwill visit and will not become a repeat performance of 1962 where?an?attempt to create the last throw of the Global dice was thwarted.?

One of the 4 Russian?warships is a nuclear-powered submarine, and whilst Moscow promptly assured that none would be armed with nuclear weapons, that comment preceded Washington’s move to green light Kyiv’s use of American weapons to target Russian territory across the border in what essentially looks like a move to proxy warfare. These are all dangerous steps and may well escalate tensions again in the oil markets as both Russia and the West try to out bluff each other into talks or actions which pushes one or the other to the prospect of a game of liar dice.

A malleable OPEC+ strategy to wrong step the oil market is one thing, but a second wrong step which?brings Cuba, America and Russia together and back into the spotlight 62 years after the first U.S./ Russia confrontation in 1962 (62 years after 1962… is it a coincidence ?) is not a good position for the World to be in.

We should also consider for a moment that Brent crude in 1962 was valued at something a little less than $2 a barrel!!

In other news…

The Biden administration said on Friday it is ready to increase purchases of crude oil to replenish the Strategic Petroleum Reserve following its?aggressive sales in 2022.

On Friday the Department of Energy issued two tenders to buy a combined 6million barrels of crude oil for delivery into Bayou Choctaw storage site in Louisiana from September through December 2024.

These tenders indicate the department’s buying rate has increased both in timing and volume from 3 million barrels a month to 4.5 million barrels a month.

The Department commented further adding they will continue to find ways to replenish the reserve much depending upon market conditions…. The same key comment used by OPEC for controlling output!

Oddly it seems their buyback target price was pitched at $79 a barrel, so time to make hay while the sun shines with WTI currently pricing in the $75.50 range!?

Biden’s 3-phase ceasefire plan for Gaza was on the line this week at the UN, with Russia, China and Algeria indicating they were not prepared to back the proposal yet. In order to pass, the resolution needs backing from nine member countries, for starters, and zero vetoes (China, Russia, Britain, the U.S. and France all have veto power).

This week’s closing guide prices:

ICE Brent 79.62 (-1.52)

WTI 75.53 (-1.52)

Ice gas oil 722.25 (-10.75)

Euro Mogas swaps 802.00 (-21.00)

Euro naphtha swaps 632.50 (-15.00)

Nymex gasoline 2.3826 (- 4.56 cents per gall)

LPG swaps 517.50 (+5.50)

Opec basket 79.81

Credit: Robert Haynes - Silvergreen Energy