Oil prices start the climb once again but the power is in OPEC’s hands

Prior to OPEC’s November meeting, prices are on the rise – but their trajectory relies on the cartel’s response.

Oil trading

Oil prices restart upward trajectory

Even with the background of the COP26 talks, and governments coming to save the world, crude oil prices start the week in a sprightly mood.

Gains were capped last week on US supply concerns and the perceived market threat of a new Iran oil deal. Moving onto Monday and Tuesday, both WTI and Brent benchmarks were in the green again.

West Texas Intermediate futures closed Monday at $84.86 and is currently trading for around $84.27.

Brent Crude showed similar performance, ending Monday’s session at $84.50. As of Tuesday morning, Brent futures were trading for around $85.09.

Goldman Sachs has changed its oil price outlook once again. The investment bank is now betting on an $100 per barrel price of WTI by the end of 2021.

It presents an interesting dichotomy between global government plans and perhaps a stark vision of where the world actually is regarding fossil fuels. At COP26, world leaders are stressing the urgent need to move away from hydrocarbons.

But with figures like President Biden coming out and asking Russia and OPEC+ to give more crude to “help the American working class”, there’s a bit of disparity between fantasy and reality.

OPEC-JMMC meets on Thursday

OPEC and allies are back for another set of talks on Thursday 4^th November as important customers plead for more crude.

Markets weren’t expecting any changes from the 400,000 bpd per month increase the cartel has been sticking to across 2021. However, a Reuters survey showed OPEC+ members delivered an extra 190,000 bpd in October, falling short of the target.

According to Reuters, this was due to local outages in some of OPEC’s smaller constituents offsetting higher output in Saudi Arabia and Iraq.

As such, we might see an extra bump in OPEC+ output in November to cover the deficit.

Let’s be clear: if any increase in oil production does come, then it will be because of OPEC internal discussions – NOT outside pressures.

The cartel has made it abundantly clear to commentators like Biden that it will only raise output on its own terms.

Frankly, it’s a bit naïve of Biden to use the “American working class” and comments about US citizens unable to drive to work as an attempt to shift the emotions of OPEC members and allies. Why would Russia, for example, care about the plight of working Americans?

Either way, the cartel appears happy to keep its output restricted. Prices are still high and look like they’re travelling upward again. It’s horses and carts for the US working class, I’m afraid, if you believe Biden’s rhetoric.

US oil supplies raise eyebrows in Washington

US crude oil stockpiles rose by 4.3 million barrels in the week ending October 22^nd, according to the EIA. However, throughput at the Cushing, Oklahoma depot dropped dramatically. Something’s not right here.

There are millions of barrels of crude sitting in storage across the United States but it’s apparently not reaching consumers. Perhaps this is why Biden is so dogged in getting OPEC and its allies to loosen the taps a little more.

At 430.8 million barrels, US crude oil inventories are about 6% below the five year average for this time of year.

Despite this, crude oil imports were up in the same period. Over the previous four weeks up to October 22^nd, crude oil imports averaged about 6.3 million barrels per day, 15.2% more than the same four-week period last year.

Something’s rotten in the heart of the United States’ oil infrastructure.

One possible solution would be for the US to get its own house in order. More production facilities could be bought online. Of course, this is no easy thing. It’s not as simple as just flicking a switch.

Despite this, Baker Hughes reports that rig counts are up for the fifteenth consecutive month in October. There are now 444 operational US oil rigs – an 84% increase over this time last year. Never mind OPEC, Mr Biden, get your own taps flowing.