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Trading  | September 23, 2018

Less than three months after Trump’s latest tweet slamming OPEC, in which he warned the petroleum cartel that it must “REDUCE PRICING NOW!”, Trump was at it again and on Thursday morning, with Brent hitting $80 per barrel and higher gasoline prices creating another headache for Republicans ahead of the midterm elections, the president lashed out at OPEC, saying that the US protects the countries of the Middle East, and warning these nations that “they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember.

Trump’s latest threat, however, was summarily ignored on Sunday when OPEC leader Saudi Arabia and its biggest non-OPEC oil-producer ally, Russia, ruled out additional increase in crude output, defying Trump’s calls for action to cool the market.

“I do not influence prices,” said the Saudi Energy Minister Khalid al-Falih during a press conference in Algiers for a meeting that ended with no formal recommendation for any additional supply boost, Reuters reports.

In recent weeks, oil prices have moved back to 4 year highs, a rally that according to analysts has been mostly due to a perceived decline in oil exports from Iran due to fresh U.S. sanctions, stemming from Trump’s decision to pull out of the Iran Nuclear deal. As a result, as much as 1.5 million barrels of output are in danger of being taken off the market.

And while Falih said Saudi Arabia had spare capacity to increase oil output, he said that no such move was needed at the moment. Instead, Falih blamed refiners for not converting enough product: “My information is that the markets are adequately supplied. I don’t know of any refiner in the world who is looking for oil and is not able to get it” he said.

Still, indicating that Saudi Arabia was quite ready to steal even more market share from Iran, Falih said that Saudi Arabia was ready to increase supply if Iran’s output fell: “Whatever takes place between now and the end of the year in terms of supply changes will be addressed.”

Russian Energy Minister Alexander Novak echoed the comments, saying that no immediate output increase was necessary, although he believed a trade war between China and the United States as well as U.S. sanctions on Iran were creating new challenges for oil markets.

Separately, Oman’s Oil Minister Mohammed bin Hamad Al-Rumhy and Kuwaiti counterpart Bakhit al-Rashidi told reporters that producers had agreed they needed to focus on reaching 100% compliance with production cuts agreed in June, which means offsetting and compensating for falling Iranian production. However, Al-Rumhy said the exact mechanism for doing so had not been discussed.

Iranian Oil Minister Bijan Zanganeh also chimed in and said that Trump’s tweet “was the biggest insult to Washington’s allies in the Middle East.” Iran, understandably, is furious at Trump because without the latest round of sanctions against Tehran oil prices would be sharply lower. After agreeing to boost output by 1 million bpd in June to offset declining Iranian production – a move that Tehran sees as OPEC butting in and taking its market share – in August, OPEC and non-OPEC nations cut production by 600,000 bpd more than their pact required, mainly as a result of falling output in Iran as customers in Europe and Asia reduced purchases ahead of the U.S. sanctions deadline.

As we noted last week, Iran told OPEC its production had been steady in August at 3.8 million bpd, however, according to secondary sources such as researchers and ship-trackers, Iranian output had dropped to 3.58 million bpd.

* * *

Going back to Iran’s arch enemy, Saudi Arabia, its energy minister said returning to 100% compliance was the main objective and should be achieved in the next two-three months, although he “refrained from specifying how that could be done.” Then again it is largely implied: Saudi Arabia is the only oil producer with significant spare capacity.

“We have the consensus that we need to offset reductions and achieve 100 percent compliance, which means we can produce significantly more than we are producing today if there is demand,” Falih said adding that “the biggest issue is not with the producing countries, it’s with the refiners, it’s with the demand. We in Saudi Arabia have not seen demand for any additional barrel that we did not produce.”

If he is right, and demand is indeed has indeed plateaued – largely due to the recent slowdown in China even with the boost resulting from the US fiscal stimulus – it could have more profound consequences for the global economy.

Finally, on Sunday OPEC also decided to change the dates of its next meeting to Dec. 6-7 from the earlier-agreed Dec. 3.The joint OPEC/non-OPEC ministerial monitoring committee will next meet on Nov. 11 in Abu Dhabi.

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