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Why Oil Prices Fell After The OPEC Meeting – OilPrice.com

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Why Oil Prices Fell After The OPEC+ Meeting | OilPrice.com


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After around forty years of making a living from financial markets in one way or another, I am not often left scratching my head these days. I may not agree with every move, but I can usually see the logic behind them. This week’s big drop in oil prices, on the other hand, mystifies me. I can, I suppose, see that it was a “buy the rumor, sell the fact” kind of thing, but the timing of the move and its complete disregard of news that positively impacts fundamental factors was a bit puzzling.

After two months that saw crude jump around twenty percent, a pullback was coming at some point, almost no matter what. That is why I wrote here three weeks ago that I was beginning to trim some positions in oil stocks, not because I expected a collapse or anything, but just because it was time to take some profit, knowing that I could buy back in if oil did pull back for technical rather than fundamental reasons.

When that pullback started as the OPEC+ meeting approached, I began to get a bit nervous. Did the market know something I didn’t? Had there been massive behind the scenes pressure from Biden and European leaders who were suffering politically because of rising energy costs? Were we about to see another easing of output restrictions?

The answers were no, no, and no but that didn’t seem to matter.

One gets the feeling that, far from feeling pressure as a result of the discomfort of Biden, Johnson et al, the primary drivers…

After around forty years of making a living from financial markets in one way or another, I am not often left scratching my head these days. I may not agree with every move, but I can usually see the logic behind them. This week’s big drop in oil prices, on the other hand, mystifies me. I can, I suppose, see that it was a “buy the rumor, sell the fact” kind of thing, but the timing of the move and its complete disregard of news that positively impacts fundamental factors was a bit puzzling.

WTI

After two months that saw crude jump around twenty percent, a pullback was coming at some point, almost no matter what. That is why I wrote here three weeks ago that I was beginning to trim some positions in oil stocks, not because I expected a collapse or anything, but just because it was time to take some profit, knowing that I could buy back in if oil did pull back for technical rather than fundamental reasons.

When that pullback started as the OPEC+ meeting approached, I began to get a bit nervous. Did the market know something I didn’t? Had there been massive behind the scenes pressure from Biden and European leaders who were suffering politically because of rising energy costs? Were we about to see another easing of output restrictions?

The answers were no, no, and no but that didn’t seem to matter.

One gets the feeling that, far from feeling pressure as a result of the discomfort of Biden, Johnson et al, the primary drivers of OPEC+ decisions, the Saudis and Russians, are enjoying it. They have major powers by the balls and the louder the leaders of those countries squeal, the harder they squeeze. The press release that followed the virtual meeting was couched in language about providing “…stability to oil markets…” but the decision itself read more as a “screw you” than anything.

That really shouldn’t come as a surprise, although I admit I thought that there may be some backdoor dealing that resulted in an offer that OPEC+ couldn’t refuse. Putin and Mohamed bin Salman, the de facto ruler of Saudi Arabia, had much better relationships with Donald Trump than they have with Joe Biden, so anything they can do to put pressure on the current administration is in their long-term interests. There is a danger that as the world moves away from fossil fuels, OPEC+ countries will leave themselves with stranded assets if they don’t take advantage of increased demand and high prices. However, long-term geopolitical concerns seem to be outweighing that right now.

Given that, the real surprise came not in the decision itself, but in the market’s reaction to it.

Oil

After the announcement, crude dropped around five bucks.

As I said, that is a classic “buy the rumor, sell the fact” kind of thing given the run up in the morning that preceded the end of the meeting but, in the context of a market where supply remains restricted and demand is increasing, it makes little sense. Over the next couple of months, those basic facts of supply and demand look like remaining in place so, even though the OPEC+ announcement resulted in a drop in crude, I remain bullish, if a little more confused than I was before, at least until the end of the year.

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U.S. stock futures rise following Friday's omicron-sparked selloff – MarketWatch

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U.S. stock futures rose late Sunday, following a steep selloff Friday sparked by fears of the global economic impact of a worrisome new strain of COVID-19.

Dow Jones Industrial Average futures
YM00,
+0.70%

gained about 230 points, or 0.7%, as of 9 p.m. Eastern. S&P 500 futures
ES00,
+0.92%

and Nasdaq-100 futures
NQ00,
+1.14%

also showed solid gains.

Crude oil futures also rebounded Sunday from a Friday plunge, with benchmark U.S. crude
CLF22,
+5.24%

and Brent crude
BRNF22,
+4.70%
,
the international benchmark, jumping roughly 4% higher.

On Friday, Wall Street suffered its worst day in more than a year amid growing concerns over the new omicron variant of COVID-19. The World Health Organization’s technical advisory group on Friday declared it a “variant of concern,” and a number of countries imposed flight bans from countries in southern Africa, where the variant was first discovered.

Little is known about omicron, but investors Friday braced for bad news.

Read: U.S. health officials urge caution, but not panic, over omicron variant

In a holiday-shortened session, the Dow Jones Industrial Average
DJIA,
-2.53%

slumped 905.04 points, or 2.5%, to 34,899.34, with the index logging its worst daily drop since Oct. 28, 2020, according to FactSet data. The S&P 500 
SPX,
-2.27%

 fell 106.84 points, or 2.3%, to 4,594.62, and the Nasdaq Composite Index
COMP,
-2.23%

 sank 353.57 points, or 2.2%, to 15,491.66.

“The pandemic and COVID variants remain one of the biggest risks to markets, and are likely to continue to inject volatility over the next year(s),” Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services, wrote in a Friday note. “It’s hard to say at this point how lasting or impactful this latest variant will be for markets.”

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Canada to Tap Maple Syrup Reserves to Combat Supply Crisis – TMZ

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Canadians to get biggest drop in gasoline prices since 2009 over COVID variant fears – Yahoo Canada Finance

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Canadians should experience the fastest drop in gasoline prices in nearly 13 years on Sunday as fears about a virulent new COVID-19 variant are expected to provide a break of 11 cents per litre at the pumps.

Dan McTeague, president of Canadians for Affordable Energy, said the national average price could drop to about $1.32 per litre but begin to rise again midweek.

“(Sunday) represents the single largest decrease at the pumps we’ve seen going back to 2009,” he said in an interview.

Global crude oil prices plunged Friday over fears about a new COVID-19 variant called Omicron that prompted Canada to ban entry for foreign nationals who travelled through southern Africa.

The January crude oil contract fell 13.1 per cent or US$10.24 on Friday and currently stands at US$68.15 per barrel.

The decrease came as U.S. stock markets closed early Friday because of the Thanksgiving holiday.

“Sunday and Monday are going to be the best days for Canadians to fill up, including British Columbia,” McTeague said

Even residents of flood-ravaged B.C. will save on the province’s high gasoline prices despite facing rationing because severe flooding has shut both the Trans Mountain pipeline and the province’s lone refinery.

Drivers of non-essential vehicles can only purchase up to 30 litres per visit to a gas station in the Lower Mainland, Sunshine Coast, Sea to Sky area, Gulf Islands and Vancouver Island.

East Coast residents won’t reap the immediate benefits of Sunday’s price drop because its regulated regional system averages price movements. That provides price predictability but blunts price discounts.

Despite the upcoming decrease, national gasoline prices have surged nearly 43 per cent in the past year as the reopening of the global economy from pandemic lockdowns prompted a recovery in crude prices.

McTeague suggested Canadians shouldn’t get too comfortable with the energy savings. He said prices are expectd to increase as OPEC and its allies, who are meeting on Monday, will likely refuse to increase production any further. Energy traders realize that Friday’s decrease was overdone and “flies in the face of fundamentals,” he added.

“My sense is that the decreases that we saw were a little exaggerated and overbought, and for that reason I think we might see a little bit more balance come back to the markets and fundamentals by Wednesday,” McTeague said.

“Unless there’s further unsettling news of greater and further lockdowns, I would expect that oil prices are probably going to recover US$3 to US$4 a barrel by Monday or Tuesday, which means by Wednesday or Thursday we could be looking at increases in the order of four or five cents a litre.”

McTeague said some gasoline savings will continue for a couple of weeks, but he foresees crude climbing back to about US$90 a barrel, which would translate into prices in Canada exceeding $1.50 per litre.

Impending carbon tax increases will further boost prices.

A tax of 2.5 cents per litre, including HST, will take effect on April 1, 2022. It will be followed in December by the clear fuel standard that will add another 18.1 cents per litre including HST, said McTeague.

Adding to the inflation pressure is the Canadian dollar which is less valuable than when it was at par the last time crude prices were around US$80. That reduces the purchasing power for all kinds of products, including energy and food.

The Canadian Automobile Association said that as of early Saturday morning, Manitoba had the lowest average pump price of $1.35/L, followed closely by Alberta at $1.377, while Newfoundland and Labrador was the highest at $1.583 with British Columbia at $1.558.

This report by The Canadian Press was first published Nov. 27, 2021.

Ross Marowits, The Canadian Press

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