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Ref: AD-2151
Summary: failure by OPEC+ to boost oil output may bring a short-term revenue boost but it also risks reaping the proverbial whirlwind.
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Last weekend when I was drafting what became Monday’s Newsletter I certainly did not anticipate Brent back below USD100pb within a couple of days! This certainly justifies the quote at the start of my piece about oil markets being “confused”. Which is not to say that some concern over lockdowns in China is unjustified. But I do think Rystad’s Louise Dickson, quoted in the FT article, (https://www.ft.com/content/2fc9a451-d3f1-4138-92cd-bca8e56e6487?fbclid=IwAR3EL2K_fjer3KiMHVFdZFFhjDoSEdYgZp1K0kTGRQc7lUVyi4dXzLHijSA) is correct in saying that markets haven’t priced in the impact of possible EU sanctions on Russian oil and/or Russian retaliation in the form of cutting energy exports to Europe.
Of course, one could glean some hope that the war and related tensions will ease from reports that ‘peace talks’ are getting more serious. But my personal view remains that the talks are more likely than not to prove to be Vladimir Putin’s playing for time and that the death and destruction will continue and result in even greater pressure on the EU to follow the US/UK/Canada lead on Russian oil.
As far as oil per se is concerned, the bad news is that if the lower price is sustained for the next two weeks or so (and this is, of course, a pretty big ‘IF’), it gives Saudi Arabia a semi-plausible pretext for continuing to refuse to deviate from the preset OPEC+ trajectory when the cartel next meets on 31 March – even though I am in no doubt that in the excellent Newsletter last week drawing on the Atlantic’s interview with MbS Hugh Miles was bang on the money about the Crown Prince’s real motivations.