West Texas Intermediate is jumping much higher this morning as Saudi Arabia announced an extended production cut through at least the end of 2023.
While I don’t normally watch oil prices too closely a jump to over $86/barrel gets my attention. If prices stay this high–or higher it will feed through the inflation numbers at some point in time and of course we will see it at the gas pump much quicker. No doubt high prices at the pump feed through to consumer confidence fairly quickly.
Let’s see if these spikes continue – of course we would welcome a little economic slowdown, but don’t need prices at the pump to be the cause.
I have had short WTI strangles on and have had to so some gymnastics over the last few days to keep my head above water. Can/will Saudi and Russia stick to any kind of output cut agreement? Time will tell, but the marketing evidently thinks so. Here is some news for those interested.
https://oilprice.com/Energy/Energy-General/Oil-Prices-Jump-As-Russia-And-Saudi-Arabia-Extend-Cuts.html
August
This picture doesn’t quite make sense: Saudi pressuring oil prices up while the US negotiates an Israeli Saudi entente that is based on security guarantees from the US to Saudi and Israel. Wouldn’t the Saudi’s be expected to ease pressure after the security guarantee?
Saudis have a long game that’s related to trying to diverse their economy away from oil. To do that, they want to sell $50B of stock in Aramco by the end of the yesr which will help fund a number of mega/vanity projects they hope will diversify their economy. Doing all this requires high oil prices.
In addition to Landlord’s comments I’ll add a few.
Saudi has been making production cuts and (and more precisely) announcements of cuts all year. The Saudi Oil Minister was also making comments directed toward those “evil” futures short sellers about making them “ouch”. That turned out to be a very lame idle threat and resulted in WTI trading in the high 60s. Sometimes these supposed cuts have been announced with the Russians and sometimes without them.
How much they are actually cutting is hard to tell. I saw an estimate that if they cut as much as they say they do, then they would be at around 9M BBL/Day in production (if that). US production is about 12M BBL/Day.
For reference this is a July announcement
https://oilprice.com/Energy/Crude-Oil/Saudi-Arabia-Sets-The-Stage-For-Big-OPEC-Production-Cuts.html
This is a March announcement
https://oilprice.com/Latest-Energy-News/World-News/Saudi-Energy-Minister-OPEC-Will-Stick-To-Cuts-Through-2023.html
It’s easy to find lots more out there.
OPEC and OPEC+ require much higher Brent prices to achieve their spending objectives, and yes Aramco stock sales are part of this as well. I think they want Brent to trade with a $100 handle personally.
Also, and in large part (IMO), this is OPEC’s response to Trader Joe’s SPR sales which are now pretty much over. The market seems to think he is out of ammo, but you never know with Trader Joe!
Does this appear to contradict the security discussions that include Israel? Probably, but I think they feel that they can balance these two objectives, and they probably can.
Saudi, OPEC and OPEC+ are first and foremost about oil prices.
Personally, I feel that WTI is at the top of it’s range, but am not going to bet that it won’t go higher. Supply of oil is inelastic it takes a long time for supply to ramp up when prices change.
Full disclosure I am long oil and gas producers stock and notes and I am also long midstream MLP shares and notes. I also have tenuous options spreads on in the WTI futures that looked a lot better on Friday than they do today 🙂
Question, when a security is called + partial dividend is it all considered capital gais/loss or is the extra bit still listed as a dividend?
Good day,
Andy
What you get paid (partial dividend or an interest payment), is not considered a part of the gain or loss. The price you paid for the security when you bought it and the difference from the redemption price is a gain or a loss.
Usually the “stub” dividend is reported as a dividend separate from the call payment.