OPEC moves to reduce supply as prices drop for oil

Bloomberg/Fuel Fix:

The wind changed again in a stormy oil market as OPEC signaled it will consider a return to cutting output next year, potentially making the second production U-turn this year.

Amid a summer of rising prices and unprecedented political pressure from President Donald Trump, Saudi Arabia, Russia and other producers had opened the taps. Now, with the U.S. midterm elections over and crude futures wilting in the face of another historic shale oil surge, the cartel will discuss a change of course this weekend.

“The message from OPEC looks like: fasten the seat belts,” said Bob McNally, president of Rapidan Energy Advisors LLC, a consultant in Washington. The cartel looks sets to “put pedal to the metal to boost production, and then immediately slam the brakes pretty hard and talk about cutting supply."

Ministers from the Organization of Petroleum Exporting Countries and its allies will meet in Abu Dhabi on Sunday and discuss scenarios including the possibility of cutting production again next year, according to delegates. Some members are concerned that inventories are rising, they said, asking not to be named because the discussions are private.

If the group, led by Saudi Arabia, does ultimately decide fresh cutbacks are necessary, there are a number of challenges. It will need to once again secure the support of rival-turned-partner Russia, which has less need for high oil prices. There’s also the risk of antagonizing Trump, who repeatedly accused the group on Twitter of inflating prices.

Another reversal would seem to be a far cry from the usual OPEC mantra of preserving stability and careful market stewardship. Yet it does reflect the level of uncertainty in a market experiencing huge shifts in supply and demand.

Earlier in the summer, prices began to surge as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade and Brent crude eventually peaked above $86 a barrel last month.
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Supplies from Iran and Venezuela are no longer needed and will only be less so as the infrastructure comes online to get US shale oil to market from the Texas Permian Basin.   I think the market probably overreacted to the loss of production from both. 

This also creates a dilemma for Iran going forward.  It has threatened to cut off the Straights of Hormuz if it can't sell its oil, but such a move would only increase the price for oil from the US and Russia.  It would likely lead to direct war with the Gulf States and destruction of its own energy sector.

About all the current government of Venezuela is good for is a living example of the folly of socialism and control freak governments.