Life in the oil market is full of contradictions. Oil prices are plunging on slowing demand fears because of China lockdowns yet global supplies based on the inventories are still extremely tight, states Phil Flynn of PRICE Futures Group.

Biden wants to give billions of dollars in climate reparations to other countries, yet he offers an opportunity for a dictator in Venezuela to produce some of the dirtiest oil on the planet. Maybe Venezuela should pay us reparations. The UK has also put off its agreement on a Russian price cap raising the assumption that Russian oil exports will continue unimpeded.

Oil prices have given back all the gains of the year on fears that China’s lockdown will drive the globe into a deep recession. Unprecedented protests and calls for Chinese leader Xi Jinping to step down may back the Chinese government into a corner where they can’t look like there are giving in to protests thereby slowing down China’s much-anticipated reopening. Reuters reported that “Police on Monday patrolled the scenes of weekend protests in Shanghai and Beijing after crowds there and in other cities across China demonstrated against stringent Covid-19 measures disrupting lives three years into the pandemic. From the streets of several Chinese cities to dozens of university campuses, protesters showed unprecedented civil disobedience since leader Xi Jinping assumed power a decade ago. During his tenure, Xi has overseen the quashing of dissent and the expansion of a high-tech social surveillance system that has made protests more difficult, and riskier.”

Oil prices have plunged on this news on light volume but should soon find support from the fact that OPEC will act at their December fourth meeting. OPEC members have already been hinting at a production cut. JP Morgan suggests it will take a 400,000-barrel-a-day cut to get the market in balance. Based on recent market action I would expect an OPEC shock and awe production cut.

Over the holiday weekend, it was reported that the Biden administration decided to ease oil sanctions on Venezuela, and they will allow Chevron for the next six months to pump crude oil in the Latin American action and export it to the United States.Reuters reported that “Chevron Corp on Saturday received a US license allowing the second-largest US oil company to expand its production in Venezuela and bring the South American country’s crude oil to the United States. The decision grants broader rights for the last big US oil company still operating in US-sanctioned Venezuela. However, it restricts any cash payments to Venezuela, which could reduce the oil available to export.” This raises the question of how much oil can Venezuela actually export. The Venezuelan regime under Maduro has drained the Venezuelan oil industry and failed to invest properly to keep it up and running. No doubt some oil will be exported but the question becomes why the Biden administration is encouraging the Maduro regime to raise output yet discouraging US production. Biden must think more of dictators like Maduro and the Iranian regime.

The State Department released a statement saying, “The following statement was released by Secretary of State Antony J. Blinken, the EU High Representative for Foreign Affairs and Security Policy Josep Borrell Fontelles, the Canadian Minister of Foreign Affairs the Honorable Mélanie Joly, and the United Kingdom Secretary of State for Foreign, Commonwealth, and Development Affairs James Cleverly.We welcome the decision announced today by Venezuelan negotiators to restart the dialogue process in Mexico City.  We urge the parties to engage in good faith toward a comprehensive agreement leading to free and fair elections in 2024, the restoration of democratic institutions, and an end to the humanitarian crisis in Venezuela. We welcome the Mesa Social humanitarian agreement and the willingness of all parties to pursue joint initiatives that will benefit the Venezuelan people and help address their dire humanitarian needs. This agreement provides the template for how further progress can be secured. We are grateful for the work of the United Nations towards this goal.

We believe that participation in the negotiations should be inclusive, diverse, and representative of the Venezuelan population to ensure that an agreement is durable and long-lasting. We continue to call for the unconditional release of all those unjustly detained for political reasons, the independence of the electoral process and judicial institutions, freedom of expression including for members of the press, and respect for human rights. We remain committed to supporting the return of democracy in Venezuela and the efforts by Venezuelans to reach their democratic aspirations.

 In this context, we underline the need for the immediate implementation of the recommendations of the 2021 EU Electoral Observation Mission to Venezuela aimed at improving future electoral processes in line with international commitments on democratic elections subscribed by Venezuela. We will continue to work with our international partners to address the urgent needs of all Venezuelans inside and outside their country. We are grateful to Norway for their steadfast dedication in facilitating this process, to Mexico for hosting the negotiations, and to Venezuela’s democratic actors whose commitment to finding a negotiated solution to the crisis has been resolute. We reiterate our willingness to review sanctions policies if the regime makes meaningful progress in the announced talks to alleviate the suffering of the Venezuelan people and bring them closer to a restoration of democracy."

Learn more about Phil Flynn by visiting Price Futures Group.