It's a disappointing day for the oil bulls as yesterday's rally has been wiped out and oil is now flat on the week. It came after a surprise cut from OPEC+. Though it was a token amount, they also gave some power to Saudi officials to cut production any time due to a change in market dyanmics.
Perhaps more importantly, it was unable to rise despite Russia cutting off natural gas flows via Nord Stream 1. The move materially raises the risks that Russia could do the same with oil when a European boycott goes into effect on Dec 3 along with the oil price cap scheme.
JPMorgan analysts say "If Russia were to decide to cut oil supplies in retaliation, a 3 mbd temporary cut could deliver a $190/bbl oil price assuming no additional policy response."
Another scenario to watch is the Iran nuclear deal, which appears to be hung up on an IAEA probe into irregularities from 2019. Iran wants it closed and I think that will happen but it's dragging out negotiations.
Here's how JPM sees the state of play:
Iran negotiations appeared to be gaining momentum in recent weeks, only to cool down again. While we believe the odds of a nuclear deal have risen to a toss-up, we continue toassume an agreement remains out of reach through 2023. That said, if a deal were reached in September, Iran would likely be able to lift its production by 1.3 mbd in 9-12 months, assuming a ramp up starts in January after the implementation phase is completed. Iran also still has about 40 mb of crude oil in floating storage, which could be delivered to the market immediately after the implementation of a deal, resulting in a temporary, two-month increase of about 700 kbd in crude supply available to the global market. Production can return to the market significantly faster if the implementation phase is expedited or Iran pumps faster, which happened in 2016. In just a matter of four months (from December 2015 to April 2016), output jumped by almost 600 kbd. The impact on balances would be more nuanced, as the deal would likely trigger a potential OPEC supply response given the group’s public signaling over a willingness to reduce output in the face of weaker prices. We estimate that to balance the market in 2023, a cut of at least 1 mbd would be required.
