Oil prices are at a historic turning point. The market tries to balance concerns about more short-term Covid 19 lockdowns versus the high probability that a safe and effective vaccine will allow oil demand to start returning to normal. The future spreads are already pricing in a better future beyond Covid, and right now, the market in China and Japan is exceeding expectations. Still, concerns of more lockdowns are hurting near-term demand expectations and will make today’s decision by the OPEC-plus Joint Ministerial Monitoring Committee a potential market mover.

The vaccine news probably reduces the chances of a shock and awe production cut, but the market fully expects that the group will extend their cuts beyond January into the new year. If the group fails to agree to that, the oil curve front end could be at risk. Yet, at the same time, it might recover if it is viewed that OPEC Plus has more confidence about demand. However, with more lockdowns on the horizon, it is unlikely that OPEC Plus can afford to be that optimistic. Our take is that oil is near the low for the season, and the rally strength will largely depend on today’s decision.

Reuters reports in an exclusive that OPEC and its allies have revised oil demand scenarios for 2021 with demand seen weaker than previously anticipated, a confidential document seen by Reuters shows. This supports the case for a tighter supply policy next year. OPEC Plus is leaking.

Geopolitical risk factors may also be in play. MarketWatch reported that, “Top advisers talked President Donald Trump out of launching a military strike against Iran’s nuclear facilities last week, the New York Times reported Monday night. Trump sought offensive options that the U.S. could take in the coming weeks, the Times reported. Still, senior advisers recommended against a military strike that they warned could spark a wider, regional conflict. Last week, the United Nations Atomic Agency said Iran was stockpiling nuclear material significantly beyond what was allowed in the 2015 nuclear agreement, which Trump withdrew the U.S. from in 2018.

The Wall Street Journal reports that President Trump is expected to order the Pentagon to withdraw more Iraq and Afghanistan forces, “furthering his promise to end U.S. involvement in world conflicts and defying many Republicans who believe a precipitous withdrawal would amount to a strategic stumble. The orders, which could come by Tuesday, would call for the U.S. military to draw down the number of troops in both countries to roughly 2,500 each by January 15, five days before President-elect Joe Biden’s inauguration. The Pentagon’s Joint Staff is expected to deliver the order in the coming days to U.S. Central Command, which is responsible for U.S. military operations in the Middle East and Afghanistan. Military planners there will draft the specifics of those plans.”  There are currently about 5,000 troops in Afghanistan and more than 3,000 in Iraq. There are no current plans to draw down the force of about 1,000 troops from Syria, officials say.

Tesla is being added to the S&P 500! Great news for electricity providers! Better open some new nuclear plants to handle the load. Too bad that perhaps the cost of driving a Tesla might not be as cheap as expected. Zerohedge reports that, “Using the Tesla Supercharger network, it is now costlier to recharge your vehicle than it is to gas up at a traditional gas station, according to a new report from Australia-based Which tecCar. The news came as a result of a “recent price increase” to use the Superchargers and – stop us if you have heard this one – “incorrect fuel figures on the Tesla website”. This, of course, puts an end to Tesla’s years long claims that recharging its vehicles offered savings versus traditional internal combustion engine vehicles according to Zerohedge.

Natural gas spike lower is probably overdone. Look for a modest recovery but needs to close 10 higher to reverse the technical damage.

Thanks,
Phil Flynn

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