By Editorial Services – November 05, 2021, 4:00 p.m. CDT
After forty years or so of living in the financial markets in one way or another, I haven’t often rested my head these days. I might not be okay with every move, but I can usually see the logic behind them. The big drop in oil prices this week, on the other hand, mystifies me. I can, I guess, see it was like “buy the rumor, sell the fact”, but the timing of the move and its utter disregard of news that positively impacts fundamentals was a bit confusing.
After two months of seeing crude jump about twenty percent, a pullback was happening at some point, almost no matter what. This is why I wrote here three weeks ago that I was starting to reduce some positions in oil stocks, not because I expected a collapse or whatever, but simply because it was. time to take profit, knowing I could buy back if oil pulled out for technical rather than fundamental reasons.
When this setback started as the OPEC + meeting approached, I started to get a little nervous. Did the market know something I didn’t know? Was there massive backstage pressure from Biden and European leaders who were suffering politically from rising energy costs? Were we going to see a further easing of production restrictions?
The answers were no, no and no, but that didn’t seem to matter.
We have the feeling that, far from feeling pressure because of Biden’s discomfort, Johnson et al, the main drivers …
After 40 years or so of living in the financial markets in one way or another, I haven’t often put my mind to it these days. I might not be okay with every move, but I can usually see the logic behind them. The big drop in oil prices this week, on the other hand, mystifies me. I can, I guess, see it was like “buy the rumor, sell the fact,” but the timing of the move and its utter disregard for news that positively impacts fundamentals was a bit confusing.
After two months of seeing crude jump about twenty percent, a pullback was happening at some point, almost no matter what. This is why I wrote here three weeks ago that I was starting to reduce some positions in oil stocks, not because I expected a collapse or whatever, but simply because it was. time to take profits, knowing I could buy back if oil pulled out for technical rather than fundamental reasons.
When this setback started as the OPEC + meeting approached, I started to get a little nervous. Did the market know something I didn’t know? Was there massive backstage pressure from Biden and European leaders who were suffering politically from rising energy costs? Were we going to see another easing of production restrictions?
The answers were no, no and no, but that didn’t seem to matter.
There is a feeling that, far from feeling the pressure because of Biden’s unease, Johnson et al, the main drivers of OPEC + decisions, the Saudis and the Russians, are taking advantage. They have major powers by the balls and the louder the leaders of these countries shout, the harder they squeeze. The Press release that followed the virtual meeting was framed in language about providing “… stability to oil markets…”, but the decision itself was interpreted more as “fuck you” than anything else.
It really shouldn’t come as a surprise, although I admit that I thought there might be some backdoor deals that resulted in an offer that OPEC + couldn’t turn down. Putin and Mohamed bin Salman, the de facto ruler of Saudi Arabia, had a much better relationship with Donald Trump than with Joe Biden, so anything they can do to pressure the current administration is in their best interests. long-term. There is a danger that as the world moves away from fossil fuels, OPEC + countries will find themselves with stranded assets if they do not take advantage of increased demand and high prices. However, long-term geopolitical concerns seem to prevail right now.
Given this, the real surprise did not come from the decision itself, but from the market’s reaction to it.
After the announcement, crude fell about five dollars.
As I said, this is a classic of the ‘buy the rumor, sell the fact’ genre given the momentum of the morning leading up to the meeting’s end but, in the context of a market where supply remains limited and demand increases. , that makes little sense. Over the next couple of months, these supply and demand fundamentals appear to be sticking in place, so even though the OPEC + announcement caused crude to drop, I remain optimistic, albeit a bit more confused than before, at least until the end of the year.
