War Breaks Out As “OPEC+ Takes On The Entire West”
This time, it’s war.
One day after we wrote that “OPEC Is Taking On The Fed“, the oil cartel did just that when it announced that it was cutting output by 2mmb/d the despite a furious diplomatic campaign by the White House hoping to avoid the inevitable, and warning that any cut would be seen as a “hostile act” by the Soros administration. Of course, despite Biden’s fondest wishes that OPEC+, which of course counts Russia among its members, would help Demcrats win the midterms by keeping the price of gas low, this was not going to happen…
… and not just for political reasons, but also due to the Fed’s increasingly challenging monetary policy. Yesterday, we summarized the dynamic as follows:
- Fed hiking rates to crush oil demand and send US economy into recession fast.
- OPEC+ cutting supply to offset reduced US oil demand and send US economy into recession even faster so Fed is forced to cut rates.
This morning, Rabobank’s Michael Every expanded on this, laying out the feedback loop OPEC and the Fed find themselves in:
Fed pivot is possible against a backdrop where oil prices march higher on supply destruction in response to demand destruction as monetary policy is tightened…
So what happens next? For one answer we go to Goldman Sachs which overnight expanded on the “OPEC+ takes on the Fed” concept and revised it to “OPEC+ takes on the West” (available to pro subs in the usual place)…
…. in which Goldman writes that the OPEC+ cut represents a return to the Old Oil Order, where core-OPEC acts under the rational behavior of a dominant producer with pricing power: “In that sense, while exceptional, this cut is also logical as it maximizes the group’s revenues today with minimal sacrifice of future profits.”…
…click on the above link to read the rest of the article…
