OPEC stunned the market late on Sunday by announcing oil production cuts of around 1.15 million barrels daily. Strangely, the announcement came ahead of the actual OPEC meeting this week and threw another spanner in the works for central bankers who may have just started to unclench their jaws a little with regard to the inflation situation.
It may not seem much, but the 1.15 million barrels per day cut is around a 1% cut in supply for global markets – still enough to move market prices. As you may or may not know, supply-demand in the oil markets is always on a razor’s edge, and even a slight change to the supply-demand situation can have significant effects on market prices. See the current and forecast supply demand for oil in the chart below and learn more here.
The Sunday night OPEC+ shock oil announcement was rather painful for the “short” oil traders. WTI had a gap opening of over 7% near $82 – its highest since late Jan. See this in the chart below and learn more here.
Looking at a longer-term chart (see below), oil has been on a recent downtrend, mostly do the Fed rate hike policies that have cooled inflation. With these new cuts and a new spike to the upside, watch the $82 area. If this breaks, we could see $100 quickly. I don’t have to tell you that this will force gasoline prices back up to previous levels and reignite overall inflation.
The new OPEC+ cuts led by Saudi Arabia will likely stoke further tensions with the Biden administration, who were unhappy with Saudi unwillingness to increase oil output last year to help bring inflation under control.
Perhaps more importantly, Saudi Arabia is leaning closer to the East and eyeing stronger cooperation within organizations such as the Shanghai Cooperation Organisation (SCO) to gain strong momentum for future development. Experts said as the country approved a memorandum granting the kingdom the status of a dialogue partner in the SCO.
No doubt more headaches for the already ailing Biden administration.
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By Tom Williams
Read Original Article on RightWireReport.com
