Today we have something special for you, a Coachman’s Report centred on the recent volatility of energy markets with oil in focus as US Crude touched the key $120 USD price level on Tuesday. Before we get into that though, the verdict is in - actor Johnny Depp was awarded $15M yesterday as the winner in his defamation suit against ex-wife and actress Amber Heard, who walked away with a $2M award as part of her countersuit.
"As a rule, men worry more about what they can't see than about what they can."
- Julius Caesar
As expected, The Bank of Canada announced yet another extensive rate hike of 50 bps on Wednesday as inflation continued to rise through April - with the Consumer Price Index up 6.8% year-over-year.
Gas played a significant role, rising more than 36% in price. Although a sharp increase in price, momentum seems to be slowing down from the 40% increase back in March, and hopefully this rate hike will play a key role in continuing to defuse this time bomb.
Special Report: Oil & Energy, The Road Ahead
The energy arena has been one in the limelight since the COVID-induced commodity rally of the 2020s, only recently being made that much more complicated by Russia’s invasion of Ukraine and subsequent resource-nationalist policies; most notably, having cut off exports of many commodities to the rest of the world and setting a precedent within oil markets by breaking the petrodollar in favour of other accepting other payment forms for oil, such as Russian Rubles or even Bitcoin.
While the start of the pandemic saw a price war between Russia and OPEC after their walkout of the OPEC+ cartel, this widely compounded the COVID woes to spark the market crash of 2020 - however, following the negative oil prices of that April, Russia and OPEC had started to continue playing ball with one another, representing over 80% of the world’s total oil output collectively.
Only now, as the Russian invasion of Ukraine has instigated much of the western world to sanction Russia - OPEC is in an interesting position as the 29th OPEC and non-OPEC Ministerial Meeting took place today, the first since Russia’s previous halting of natural gas supplies to Finland, Poland and Bulgaria and since the most recent cutting off of Denmark to their oil supply distribution yesterday. This has prompted and expedited the process of Finland and Denmark joining of the EU as a full-steam ahead effort on sourcing alternative energy suppliers by 2023 has been made a top priority by the economic bloc given their phasing out of Russian energy.
Further, to OPEC’s meeting today, the cartel surprised everyone by increasing production by 648, 000 barrels per day through both July and August with the overarching backdrop of this meeting being their re-affirmation of returning the 10M barrels per day they choked from the market within April of 2020. This will not make up for the 1M barrels per day of Russian oil that has been lost and has prompted reports of the idea that OPEC might suspend Russia from their agreement - this would allow core oil-producing OPEC member nations such as Saudi Arabia and the UAE to significantly increase production and obtain the lower and more importantly, less volatile oil prices that OPEC strives for, which Russia’s self-interested motives have impacted. Read the full meeting notes here. Another key part of the energy puzzle is pictured below with a main US implication being that their strategic petroleum reserve has been greatly depleted, with Biden having sold-off a substantial amount through oil’s run instead of introducing it to the market when it’s most needed as it was originally intended to supply 4.4M barrels of oil per day to the US economy over a 90 day period. Only recently within May has this actually started to be the case. Learn more about the US Strategic Petroleum Reserve here.
Chart of the Day - S&P 500 P/S Multiple...Now at tech bubble levels