The oil bulls are giving up.
Today is the fourth straight day of selling since the OPEC+ decision to cut output and it could be the seventh consecutive week of declines. Increasingly, the fear in the energy market is that OPEC is out of bullets and that we’re heading towards a war for market share once the latest round of output cuts expire in Q2.
WTI was last down 70-cents to $72.37, just above the November low of $72.16. If that breaks, it would take oil to the lowest since early July. A run on stops could lead to a sharp drop below.
Oil weekly
The problem for OPEC is that it’s tough to tighten the market at this time of year because — seasonally — it’s the weakest period for demand. Yesterday, Saudi Arabia’s oil minister tried to push back fears about a flood of oil, saying the cuts could be extended but the alliance is increasingly tenuous. It will only take a moderate amount of cheating from any OPEC+ member for discipline to break down. Said differently, the odds are against OPEC winning this battle, despite their best efforts.
The main thorn in their side has been the US, where shale players continue to drill and pump. US production is at a record 13.2 mbpd and though rig counts have declined, there’s been no sign of a crest in production. That could begin to materialize in Q1 but if it doesn’t, then OPEC might have no choice but to drive oil prices down to $40 to send a message. If that happens though, it could play right into the US’s hands as they could re-fill the SPR.
If there is a silver lining for oil oil bulls it’s that sentiment is terrible and seasonals turn for the better in January. But that’s still a month away and the break of the November lows highlights the risk of a tumble to $68.
Up next are the weekly inventory numbers, the private data is due after the US close but usually leaks so a rebound in oil prices starting in the next few hours could be a tell. There is some chatter that tomorrow’s EIA inventory data could show a 12 million barrel headline draw.