Oil price falls on OPEC disarray, VIX falls again

Today's market highlight is the oil price off 2% on a simmering OPEC+ row. The Russell 2000 rose 0.7%, but stocks were stagnant in this holiday-shortened trading session today. The VIX made a new low below 13 for its current move, reflecting calm on Wall Street as traders watched shoppers flock to stores for Black Friday while another record was set for people traveling across this country for the holiday.

TODAY’S MAJOR NEWS

Will OPEC indiscipline crash the oil price?

Crude oil prices have plummeted at times in recent days based on reports that OPEC was delaying its previously scheduled Sunday meeting. Crude oil prices fell another 2% to $75.5 per barrel. Discord at OPEC+ is so bad that the ultimate club will hold its next meeting online rather than in person. Rumors circulated that Saudi Arabia was upset at African cartel members regarding their output numbers, raising risks that the cartel’s ability to control output may be unraveling. Angola and Nigeria reportedly want higher production allowances. Saudi Energy Minister Prince Abdulaziz bin Salman pushed Angola, Congo, and Nigeria to accept reduced output targets for 2024 after a row in June.

Many of these OPEC members fund their economies through oil revenues, including Saudi Arabia, which currently bears the heaviest load of production cuts. Reduced output is not giving them stable revenues because the sluggish world economy is hurting demand. As such, various members seek to increase their quotas while battling the temptation to cheat the system to increase their revenues. This turmoil risks increasing oil supplies, driving prices even lower, and putting the market in a downward spiral.

Black Friday will take the pulse of the US consumer

Black Friday is one of the busiest shopping days for US consumers. Businesses count on Black Friday sales for annual profits. Sales on this date are also seen as an indication of what we can expect in consumer buying through the remainder of the holiday shopping period leading up to the Christmas holiday next month – taking the temperature of the American consumer. Strong sales would suggest a continued resilient economy, while poor sales would raise fears that we are slipping into a recession.

Members of the Federal Open Market Committee of the Federal Reserve will monitor data from today’s consumer buying while noting Wednesday’s consumer sentiment survey data showing that consumers expect a resurgence of inflation in the month ahead. Declining consumer sentiment amid expectations of a resurgence of inflation would be expected to result in slower holiday sales – doing the work of the Fed for it –. Still, we’ll need to see if the data backs that up in the days ahead.

Major setback for the biofuel industry

Soy oil prices plummeted this morning, dragging soybean prices with them, as traders reacted to a late Wednesday court ruling that provided a significant setback for the biofuel industry. In the past eighteen months, this key agricultural commodity has fallen 40% in price, with weakness accelerating. Late Wednesday, a US appeals court struck down a Biden Administration decision to deny small refiners "hardship waivers" exempting them from the biofuel blending mandates. The Environmental Protection Agency had dismissed nearly all of the outstanding petitions from oil refiners arguing that blending ethanol and other biofuels into the fuel they sell created financial hardship for them.

The Fifth Circuit Court of Appeals ruled in favor of the refiners that the EPA had wrongfully made the retroactive decision. It said that the EPA can issue waivers if they prove that the obligations cause them undue harm, but the court had a problem retroactively not allowing the waivers. That increases the supply of RINS on the market, although RINS prices are already suppressed. The decision certainly does little to encourage new investment in the renewable fuel sector in the near term, although existing plants will likely continue to move forward. The expectation is that a new lawsuit will be filed, but that all takes time to play out.

TODAY’S MAJOR MARKETS

Equities mark time in the shortened trading day

• The Russell 2000 rose 0.7% in morning trade, with the Nasdaq and S&P 500 were unchanged
• The Dax rose 1.2% overnight, the Nikkei 225 was up 0.5%, and the FTSE 100 was unchanged
• The VIX, Wall Street’s fear index, fell to 12.5 (its recent all-time low was 9.2 on the final day of 2017)

Bonds yields unchanged, Dollar dips

• 2- and 10-year yields were unchanged at 4.95% and 4.47%, respectively
• The dollar index fell 0.4% to 103.4
• Versus the dollar, Sterling continued to rally and was up 0.6%, while the Euro was up 0.4% and the Yen was unchanged

Gold holds above 2K, Oil falls again

• Oil prices fell 2.0% to $75.5 per barrel  (its recent low was $66.7 per barrel in March this year)
• Gold prices held above $2,000 per ounce, up 0.6%, while Silver prices rose 2.9% to $24.4 per ounce
• The grain and oilseed sector is mostly lower, led by news from the soybean complex
• Wheat made new two-year lows in Kansas City and Minneapolis, adding to the weakness in the corn market

Analysis by Arlan Suderman, Chief Commodities Economist: [email protected]

Market outlook by Paul Walton, Financial Writer: [email protected]