Would another OPEC cut be that big of a surprise?
Minneapolis, MN | June 13, 2023 | By: Steve Sinos, Blue Lacy Advisors, LLC
There is a lot of speculation about OPEC's next move. The last announcement may have been a surprise, but it seemed in line with market signals. What can we find in the same data sources this time?
Three Things: OPEC cut again?
No one really knows why OPEC does what it does, which only compounds the common misinterpretation of available market data, such as speculative positioning. While the April meeting brought an unexpected cut, it wasn’t out of line with softer-than-desired fundamentals. The pace of global storage changes points to the possibility of a similar outcome, though with lower odds.
With tightening markets primarily dependent on lost Russian exports and accelerating demand recovery in China, the uber-bullish lot is still more disappointed than the shorts, who are warned about “ouching.”
Those shorts keep piling on. Remember, they already sold. Many would take profit if another OPEC cut reduced the probability of the bear case materializing.
Global Storage
Many market observers were surprised by OPEC’s April announcement. That’s mainly because they don’t invest the time or resources to monitor flows properly. We had discussed the potential of a cut based on that data. It wasn’t our so-called base case, so don’t take this as a victory lap, but it was an important consideration in our discussion of market balances. Given the price response following the announcement, it is fair to say that the market ultimately agreed that it was not as big of a deal as the surprise made it seem. Indeed, judging by changes in storage, markets were unexpectedly soft over the five- to six-months leading up to the announcement. There was some reason to believe that markets were softer than OPEC wanted. This was largely due to persistent Russian exports and slower-than-forecasted Chinese demand recovery. Such is the risk of putting your forecasting eggs into those two baskets. Still, there were early signs of tightening, and the general feel was leaning bullish. For example, the pace of global storage draws was starting to accelerate.
*This summary is based off June 5, 2023
A free excerpt, such as this one, will be published on a delay periodically. This is an excerpt from Blue Lacy Advisors, LLC's (“Blue Lacy”) weekly commentary for clients, which is based on a collection of models, research/analytical subscriptions, and bespoke work. Each week Blue Lacy explores how market drivers included in these analyses might affect or be used in clients' planning, budgeting, and execution of strategy. Call Blue Lacy to make an appointment today!
Meet the Author!
Email: Sinos@bluelacyllc.com
Phone: +1-832-413-3124
Website: www.bluelacyllc.com
Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.
He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.
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