A Day Late and a Dollar Short
Will OPEC+ reconsider production increases? Nah.......
The title of this alerts newsletter is telling, but not obvious. The ‘day late’ part is me, waiting until the confirmation ‘meeting’ of OPEC+ set for 1500GMT today, instead of giving you this ALERTS email yesterday, as per the normal schedule.
The ‘dollar short’ part is of course related to OPEC+, and their self-destructive behavior that never changes, and why we must be prepared to see these same missteps from the cartel – over and over again – and predict them and profit from them.
What am I talking about?
The history of OPEC (and the Russian inclusion) and their production schedules has been a history of a conflict in cartel market manipulation. It’s a simple formula, but despite it’s simplicity, it’s a conflict OPEC falls into again and again – and helps to often scuttle the positive upwards trajectory of oil (which should continually move higher – see any of my three books).
Here it is, in it’s simplest form: Pump less oil and it’s price goes up, pump more and it goes down. That’s easily understood. But here’s the conflict: Pump less and price goes up – but the subsequent temptation is to take advantage of those higher prices to PUMP MORE. And much more often than not, the OPEC cartel gives in to that temptation, spoiling much of their previous work.
This has been the pattern since 2013, and in a varied form through quota cheating, a lot longer than that.
And here we are again, as the OPEC cartel members, specifically the UAE and of course Russia, couldn’t resist the opportunity to demand increases in production numbers at their last meeting in mid-July. Oil prices, of course, promptly began to skid. OPEC would like everyone to believe that this was a measured increase, in response to increasing market tightness and US pleas for more supply.
Nah, it was just greed.
Oil has just finished it’s worst month since it began it’s renaissance in December 2020. And, unless OPEC does something entirely out of it’s historic nature – and smart – and rethinks these production increases in light of a Delta variant yet to reach it’s peak here in the US, that downtrend is now going to resume.
I’m writing this in the morning, before the 11AM EST meeting results are being announced, and if OPEC does the smart thing – I’m going to look a bit silly.
They won’t.
Of course, the other side of this greed coin is when oil prices moderate low enough, it’ll bring the greedy cartel back to the table to rethink the disciplined Saudi-led plan that has given all of OPEC+ better prices than they’ve collectively seen in more than 3 years.
And when will that be?
Not at $67 a barrel, that’s for sure – I’m betting it’s below $60, which is where I’ll be looking to re-initiate some bigger oil positions. I’m also guessing that price will fall in nicely with the Delta trajectory, still peaking, but finding it’s limits in the Fall.
In all cases, we’re not doing much of anything right now. Have a great Labor Day weekend.
dan@dandicker.com
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