“If it’s not one god it’s another. Allah or oil. Jesus or Jewels. Lenin or lust.”
– Victor Robert Lee
The 45th Meeting of the Joint Ministerial Monitoring Committee (JMMC) and the 33rd OPEC Ministerial Meeting took place today at the OPEC Secretariat in Vienna, Austria.
Usually OPEC meetings are boring and bureaucratic politicking, and rarely catch the media’s attention. Today, however, all eyes are on the conglomerate of 13 oil producing countries. “It could well be its most significant gathering in years,” claims the Financial Times.
(Source: Richard Masoner)
The big news: OPEC will cut production by 2 million barrels a day because of “uncertainty that surrounds the global economic and oil market outlooks.”
The question: Why should that matter to you?
OPEC doesn’t have direct influence over American oil… but since the oil price is set by the global market and OPEC members produce about 40 percent of the world’s crude oil – and export over 60 percent of total petroleum traded internationally – its policies indirectly affect prices in the United States.
The OPEC cuts are putting undue pressure on an already tumultuous global energy market, threatening American energy security.
“The reduction of 2 million barrels a day, or 2% of global supply, sets OPEC ‘on a collision course with the free world’,” puts one analyst at FT more bluntly.
The Biden administration said it was disappointed in the decision, calling it “shortsighted” in light of global energy prices already lifted higher by Russia’s invasion of Ukraine.
“At a time when maintaining global supply of energy is of paramount importance, this development will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices,” the White House release asserted.
We’d likely agree.
In America, even without OPEC pressure, California and much of the West Coast, who generally lead the market in gas prices, are seeing prices of upwards of $7 dollars per gallon.
California gas prices, visualized. (Source: AAA)
These prices come months after Biden already sought to ease market tightness by ordering the release of oil from the U.S. Strategic Petroleum Reserve.
Tsk, tsk. The strategic reserves are meant for dealing with an actual crisis. Not a political one. Biden’s decision to release the reserves has already been disparaged as a Presidential faux-pas in light of the coming midterm elections.
If OPEC decides to reduce production of oil, the market will respond. The price of oil will go up. Gas prices will follow. The oil that was released from the strategic reserves will have to be replaced at a much higher price than what it cost to reserve it.
Also on the docket at the OPEC Secretariat in Austria: “Grant the JMMC the authority to hold additional meetings, or to request an OPEC and non-OPEC Ministerial Meeting at any time to address market developments if necessary, and reiterate the critical importance of adhering to full conformity.”
Expect more meetings with even higher contentions. Expect even higher gas prices.
As if the whodunnit over the Nordstream sabotage wasn’t enough. Now we can add OPEC-watching to our list of spectator sports, right along with central bank hijinx.
P.S. Tomorrow, we’ll tackle the Jones Act, which arcanely impedes U.S. based shipping companies from supplying natural gas to ports in Europe. Mark Rossano, our guest this week on The Wiggin Sessions, digs in to make it clear why there is yet another law on the books with ridiculous unintended consequences.
P.P.S. If you missed it yesterday: “For most investors,” says our guest on TWS this week, Mark Rossano, “the next 10 years will be remembered as the ‘Lost Decade.’ Not for you if you discover how to profit from supply chain opportunities.”
He wrote up a free report you can read today. Mr. Rossano, a corporate raider, and founder of C6 Capital Holdings, calls it his most promising energy stock. Think of it like an article out of Popular Mechanics. Collect your free report, here.