Oil markets moved higher this week primarily on the “surprise” production cut announced Sunday evening. Recall two weeks ago we cautioned “ All eyes will be on the FED and what they announce in the next meeting, more rate hikes or not? Also look to see if OPEC+ decides to cut production to bolster prices in the coming weeks.”
It wasn’t the shock of a million barrel cut, more of the agreement that Russia would extend their already in place cut of 500k bbls for another six months, thus totaling the Cartels cut to 1 million. Fear not, it has been a very long time since OPEC has actually adhered to output quotes. Most of the time the money is too good to pass up for many Nations.
The fear with the cut is that Inflationary risk will rise as overall cost become higher. As US manufacturing activity fell for the fifth straight month, coupled with yesterdays Inventory report showing Refining production slowing, it might signal that Inflation will continue to rise as demand remains high. I tend to think about it differently (hold your comments) - If the cuts raise fuel prices, and people have to spend more on gas, heat, power, etc…. wouldn’t that force them to have less to spend on discretionary items therefore pushing down demand and subsequently lowering inflation? We will leave that to people much smarter than me. (Again, hold your comments).
The draws across the board with inventories yesterday didn’t help any as futures again rose and we sit about $.10 higher than we did Monday morning. As cooler heads prevail and the mentality shifts back towards the overall healthy of the economy in the months ahead, expect sideways daily pricing moves with a wide range from high to low.
