Oil sunk to levels that are leaving traders wondering two things:
- Will OPEC implement further cuts to raise prices?
- Will the United States finally move to purchase some crude to refill its drained reserves?
Traders who have been brutalized by falling prices over the last couple of weeks were likely disappointed this week when they heard Jennifer Granholm’s answer the second of those questions.
“It will be difficult to refill at WTI $70 ”, Granholm said, adding that it would take years to replenish the strategic petroleum reserves.
Some traders are still wondering whether OPEC+ will see the banking collapse (which led to falling oil prices) as a motive to cut production beyond the 2 million barrels per day that the group is currently trimming.
Russia has already agreed to cut 500,000 bpd.
This is a voluntary cut not arranged by the OPEC+ group; it was more of retaliation on Western sanctions.
Analysts are looking for further cuts in order to stabilize the price, but it’s unlikely at this point that OPEC+ will cut production this year unless the market fundamentals severely swing one way or another.
It is routinely said that OPEC members have specific breakeven prices in mind, and they will defend those prices.
Many of you have heard me discuss the $80 ideal barrel price in the past.
But also in the past, production changes from OPEC+ have had another factor behind them: the reason behind the price moves.
Most OPEC+ members rely heavily on oil revenues to support their fiscal budgets.
The recent price slide is not about oil fundamentals – it is about sentiment and fear in the market caused by the banking collapse, about something that could happen in the future.
OPEC would be unlikely to cut production further than it already has with the prospect of more demand right around the corner, despite the residual market panic as a result of several regional banks collapsing.
Yes, the bank collapses could spread. Yes, it could lead to further recession and stymie future economic growth. But now is not the time to put the cart in front of the horse.
There’s a fairly consistent thought process for OPEC+ to stay the current course, as it has said it would do for the rest of the year, and leave its 2 million barrel per day cuts in place as planned.
What if I told you there’s tremendous opportunity to profit from energy trading in either direction.
Energy prices could stabilize, they could continue their tumble or even begin to rise. There’s an approach to this market that can extract profits no matter what happens.