via Zerohedge:
OPEC stunned the market late on Sunday by announcing oil production cuts of around 1.15 million barrels per day. The announcement, strangely, came ahead of the actual OPEC meeting scheduled for today, and throws another spanner in the works for central bankers who may have just started to unclench their jaws a little with regards to the inflation situation. Indeed, US PCE inflation on Friday fell to 5.4% y-o-y, down from 5.3% a month earlier and a tick better than expected, but preliminary Eurozone core CPI actually lifted from a month earlier even as the headline figure fell by more than the Bloomberg survey had predicted.
The durability of declining headline inflation must now be seriously questioned if oil producing countries are determined to ensure that oil prices have already bottomed. Rabobank’s energy expert, Joe DeLaura, had already seen Brent crude prices testing $85/bbl by the end of the year –as it is already is today– and $100/bbl in 2025. The critical factor for central banks may now shift to the level at which those declines are likely to stop. Is it really going to be 2%?
The OPEC+ production cuts come on top of the 500,000 bbl per day reduction announced by Russia in early March, and highlight how susceptible the economic outlook remains to (deliberate) supply shocks. The US response until now has been to release oil from its Strategic Petroleum Reserve (SPR), which has reduced stocks to its lowest level since the early 1980s. US Energy Secretary Granholm recently told Congress that it could take “years” to refill the SPR: the OPEC cuts may stretch Granholm’s timeline even further as crude prices get pushed further away from the levels at which the Biden Administration is happy to be a buyer.
The SPR is almost completely drained so no more oil to tap from…..and now we can’t afford to refill it!
AC