The recent price crash in oil led by hedge funds is raising the possibility of OPEC’s revenge, says Phil Flynn of PRICE Futures Group.

There is little doubt at this point that OPEC will extend their production cuts but there is also growing speculation that they will make another substantial production cut to send the world a message. Not only because some of the members are unhappy with the war in Gaza but also because they believe that speculators have taken control of this market. Yet trying to use oil as a weapon as we have historically learned will not work but in a world where the United States leadership believes the biggest threat to the globe is climate change then it’s likely to succeed in controlling global prices and OPEC will have the world over the oil barrel. Yet the Biden administration says they are not worried about OPEC using oil as a weapon because they say they have an understanding.

The Financial Times in an exclusive report that, “The White House’s chief energy adviser has said he is confident that Arab oil producers will not weaponize energy, despite mounting anger across the Middle East over Israel’s siege and bombardment of Gaza. Mr Amos Hochstein told the Financial Times that the level of collaboration between the US and Gulf producers, including Saudi Arabia, had been “very strong” over the past two years. He said, “Oil has been weaponized from time to time since it became a traded commodity, so we’re always worried about that, working against that, but I think so far it hasn’t,” he said in an interview. “We have two active wars in the world, one involving the world’s third-largest producer [Russia], the other in the Middle East where missiles are flying near where oil is produced, and yet prices are near the lower point of the year.” That showed, “we are managing it fairly well, but we can never rest and it’s an evolving situation”, Hochstein said. “The collaboration and coordination between producers and consumers over the past couple of years has been very strong in trying to prevent energy shocks,” he added.

Reuters reported this morning that the head of Japan’s oil industry body, Shunichi Kito, president of the Petroleum Association of Japan said that he expects that, “At least, the current production curbs will probably continue,” including additional voluntary curbs from Saudi Arabia and Russia, Shunichi Kito, president of the Petroleum Association of Japan (PAJ), told a news conference, noting that Saudi Arabia wants to keep oil prices above $80 a barrel. “We don’t know if there will be deeper production cuts,” he said. We do not know either, but the market is getting a boost from that speculation.

Oil is also getting support from weakness in the dollar and is ignoring an uptick in the oil rig count. MRT reported that oilfield service firm Baker Hughes said the US rig count it has issued weekly since 1944 rose for the first time in three weeks, adding two rigs for 618 rigs at work nationwide. That’s 164 rigs or about 21% of the 782 rigs active across the US a year ago. The number of rigs drilling for crude oil jumped six rigs—the biggest increase since February—to 500 rigs, still 123 below the 623 counted last year. The number of rigs seeking natural gas fell to its lowest level since early September, dropping four rigs to 114 rigs—43 fewer than the 157 seen last year.

Yet will investment continue after the large oil price drop? Talk that US producers are cutting cap x in part because of the sharp drop in price. The Wall Street Journal reported that “Wall Street’s ESG Craze Is Fading as Investors pulled more than $14 billion from sustainable funds this year.” The Journal says that “The about-face comes after tightened regulatory oversight, higher interest rates that have slammed clean-energy stocks and a backlash that has made environmental, social and corporate-governance investing a political target.”

Fox Business reported that “US energy experts are warning of the economic and national security implications of President Biden’s pact with China this week to move towards shutting down fossil fuel production in favor of green energy. They wrote, “The State Department announced this week it had struck a deal with its Chinese counterparts pledging to “accelerate the substitution for coal, oil and gas generation” with green energy sources like wind and solar power. The nations, which account for nearly half of global greenhouse gas emissions, also agreed to “deepen policy exchanges” on reducing carbon emissions in various sectors, like power, industry, buildings, and transportation, across their economies. But the agreement—“in which the nations further pledged to “sufficiently accelerate renewable energy deployment in their respective economies through 2030”—was criticized over its potential impact on US consumers. Experts also noted that China has rarely followed through on international accords and stands to financially benefit from such an agreement since it controls much of the world’s green energy supply chain.’

This comes after OIL Price reported last week that the “North American Reliability Corp: As much as two-thirds of the United States could experience blackouts in peak winter weather. Earlier this year, NERC issued a blackout warning for some parts of the US over the summer, citing extreme temperatures. The regulator points to the lack of gas transport infrastructure as one of the main challenges for the US grid this winter. As much as two-thirds of the United States could experience a blackout. 

The Iranian-backed Houthi rebels allegedly hijacked a ship that they thought belonged to Israel. Iran has come out to defend the Houthis who said that they did not hijack a ship. Stay tuned.

The November sell-off may have come early. It traditionally comes right around the Thanksgiving holiday. Oil prices are trying to turn around and after hitting very key support, are now trying to complete the process and give the above signal. The number that oil has to beat to shake the technical traders out of the market is 7678 which is the ten-day moving average. If the market closes above that point, we could see some major short covering going into the holiday week. Still, we have to caution that light volume on the Thanksgiving holiday can lead to some crazy moves but technically if we hold on to these gains the selling more than likely is over.

Talk of record LNG exports in natural gas wasn’t enough to overcome near-record production and the possibility it might not be as cold as people thought. This week we’re looking for a very small injection into supplies of about two BCF and it may need a cold blast of winter to turn the market around.

Learn more about Phil Flynn by visiting Price Futures Group.