Friday Haymaker

StoneX's Vincent Deluard on International Stocks

“Why is this market so unshakable?  It must be because 1) so many people have so much surplus money to invest; 2) that hundreds of thousands of newcomers have watched others make money in the market, and are determined to do likewise; 3) stocks are scarce in relation to total demand; 4) the specter of inflation makes common stocks widely sought; 5) corporate earnings are rising.  This roaring market shows no signs of slackening its pace.” -Ira Cobleigh, in his book ‘Happiness is a Stock that Doubles in a Year’ (1968). (Per John Hussman, this came out right before the 1969 collapse in the high-flying stocks of that era.)

"The idea of Israel now attacking Iran's oil assets is something we see as a zero probability. The ill will it would engender by turning something into a... really, a global problem, we think, is the reason it's got such an infinitesimally small, or what I would say is a zero-probability occurrence." -Mike Rothman, Cornerstone Analytics

Hello, Readers and Subscribers:

Before I get into my usual introduction to a Guest Haymaker piece, I wanted to comment on the bizarre media coverage of the oil market recently. Frankly, I’ve never seen such blatant disinformation, bordering on misinformation, in my career. Of course, that’s only been about 45½ years! 

This charade, masquerading as serious reporting, started with a Financial Times article last week stating that OPEC was preparing to abandon its production discipline and let the price fall sharply. By the end of last week, CNBC was providing what seemed like nonstop coverage of this alleged policy change. The tone wasn’t merely that OPEC was going to unleash more production; rather, it was that it had already announced its intent to do so. (By the way, these media sources almost never explain why OPEC cut back production in the first place — namely, the release of almost 300 million barrels from the Strategic Petroleum Reserve. Of course, that was absolutely NOT politically motivated!)

This prompted me to utilize my new favorite LLM tool, Perplexity AI. (Thank you, Roger, for turning me on to that great service.) It clearly replied that OPEC had made NO such an announcement. Then, I went to our main resource for reliable intel on the crude market: Cornerstone Macro. It has long-standing and high-level contacts at OPEC. Their sources were adamant that reports of said announcement were bogus, despite the repeated media chatter contending they were fait accompli. 

Then, yesterday, the Wall Street Journal ran a front page item in its “What’s News” section declaring that, “The Saudi oil minister said that crude prices could fall to as low as $50 per barrel if OPEC+ members don’t stick to agreed-on production limits, delegates to the cartel said.” 

(Notice that last phrase. In the body of the article, there was no mention of the names of these delegates. Naturally, it’s always tough to challenge anonymous sources.)

The Journal chose to run this piece yesterday, despite that OPEC itself put out the following press release on Wednesday  (i.e., giving the Journal time to pull the article):

With reference to the Wall Street Journal (WSJ) article, dated 2 October 2024, titled “Saudi Oil Min Said Prices May Fall to $50/B if Others Cheat, Sources Say,” the OPEC Secretariat categorically refutes the claims made within the story as “wholly inaccurate and misleading.”

The article falsely reported that a conference call took place in which the Saudi Arabian Energy Minister allegedly warned OPEC+ members of a potential price drop to $50/barrel should they fail to comply with agreed production cuts. It also attributed an alleged quote to the Minister, stating: “Some better shut up and respect their commitments toward OPEC+.” These claims are entirely unfounded.

OPEC secretariat stresses that no such conference call occurred last week, nor has any call or video conference taken place since the last OPEC+ meeting on September 5th. The alleged statements, attributed to unnamed sources, lack any credibility and are completely fabricated. 

OPEC secretariat emphasizes that its meetings, whether in person or via teleconference, are consistently conducted in a civil and respectful manner. Therefore, it is deeply concerning that the WSJ would publish such a report, which not only lacks journalistic integrity and professionalism but also shows a blatant disregard for the respect owed to OPEC+ Ministers.

While I realize there is no love lost between Western oil consumers and OPEC, it is important to consider the unintended consequences of oil price crashes. With a market that is already seriously under-supplied (the critical Cushing, Oklahoma storage facility is close to its lowest levels ever), the disincentive to producers by creating ultra-low prices sets the stage for future shortages… and eventual price spikes.