Energy Prospectus

Oil prices experienced one of their worst trading days in recent memory on Friday, plunging across the board by over 10% on fears that a new COVID-19 variant discovered in Southern Africa might dampen economic growth and trigger another demand slump. Following the spectacular failure of the SPR release, which instead of depressing prices ratcheted them up higher, renewed COVID-19 concerns have now brought about President Biden’s objective. OPEC+ might still have a say in this, with the group's December 02 meeting potentially resulting in a reduction in production targets for 2022.

China Remains Non-Committal on SPR Release. Despite repeated talks with the US government, China has pushed back against President Biden’s calls to “do more” and stated it would coordinate its own releases of strategic stocks according to its needs, cooling down the enthusiasm of market bears. < So China gets Team Biden to drain the SPR, lowering our national security, and then they back out of the deal. It is just too easy to "play" Biden.

OPEC Panel Finds US SPR Release Superficial. OPEC’s Economic Commission Board estimates that the SPR releases carried out by the United States and its partners will only inflate the global crude surplus over Q1 2022, potentially paving the way for a slower-than-assumed OPEC+ production rollout coming up. < Oil demand is seasonal and Q1 is always the lowest demand period. Each year in May demand for oil spikes by 2 to 3 million bpd. U.S. crude oil inventories are now below the bottom of the 5-year range for this time of year.

IMO today's oil price drop was way overdone, probably because it happened on Black Friday, which is a low volume trading day. Lots of sellers and no buyers.

Read this: https://www.zerohedge.com/commodities/a ... has-answer

"The impact of a new large Covid wave would be c.0.7 mb/d over 3 months, and up to at most $2 downside versus Goldman's current modal price forecast path. Instead Brent collapsed to $12 below it, an arb of some $10/barrel.

Admittedly, to this negative Covid impact, one could also add the added bearish element of this week's bearish SPR announcement which Goldman calculates is worth a net 47 million barrels to its 1H 2022 balances, and an additional $2/bbl downside to our forecasts. Taken together, these represent at most $5/bbl downside to Goldman's $85/bbl 4Q21-1Q22 oil price forecasts.

Said otherwise, a worst-case outcome means oil is fairly priced at $80. At its closing price below $73 it's a steal."