OPEC+ complains about volatility, but here’s what they really want
Many OPEC+ ministers have closed ranks over the past week to bemoan oil price volatility. According to a report by Standard Chartered, accusations of misleading figures about weakening demand and the disconnect between physical and paper markets are actually code for one thing: they want higher prices.
Libyan Oil Minister Mohamed Oun, for example, blamed what he calls “increased volatility” on “misleading news and stories about global oil demand and supply”, which “all sent wrong signals to all market players”.
But as StanChart pointed out, when some OPEC+ ministers talk about “volatility,” what they really mean is “falling prices.”
The realized volatility for Brent that Oun is talking about is currently 44%, just 4ppt higher year-over-year, StanChart said.
As for accusations that the market has been fed misleading demand numbers, that’s a more complex issue, but one that StanChart says can still be debunked, using US gasoline demand as the piece of the puzzle. . U.S. gasoline demand, which accounts for 9% of global oil demand, weakened in the second and third quarters, with five straight months of year-over-year declines.
In support of OPEC+’s complaint that demand could be higher than reported, August’s demand numbers (-2.6% y/y) are better than July’s (- 7% a/a).
Source: EIA, Standard Chartered
The argument could also be made here that the revised monthly demand data – which only extends to May – is significantly more accurate than the weekly figures, which are used to suggest that demand is slowing in June, July and August.
Still, StanChart considers oil fundamentals to be “significantly weaker in the second and third quarters than they were in the first quarter, and that, not fake news, was the main driver of prices.”
OPEC+ has threatened to cut production to rectify the disconnect it sees between paper and physical markets and curb this “volatility”.
By Julianne Geiger for Oilprice.com
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