FAST FIVE: OPEC Is Taking On The Fed… And Goldman Is Buying Every Barrel It Can Find
And Goldman Is Buying Every Barrel It Can Find Earlier today, Rabobank's Michael Every was the latest to try his hand in defining the conflict that – according to Zoltan Pozsar- has defined not only 2022 but will define the collapse of the dollar and the birth of the Bretton Woods 3 regime, when the geopolitical strategist discussed Putin's “vitriolic speech” on Friday in which, according to Every, “as Russia rails against “paper dollars and euros” and extolls the strength of commodities, can the West slash rates or do endless QE to bail out the tiny elite who own most financial assets, and in doing so prove Moscow right in the eyes of the rest of the world?” While Every disagrees with Zoltan on whether the dollar will fall and whether a new Bretton Woods regime will emerge, the two are in agreement that the only response the west has to the commodity shortage created by the Russia-China-Africa-LatAm axis would be either to cause a global dollar funding squeeze (by hiking rates) which however has an unpleasant habit of crushing “friendly” allies such as the BOJ and BOE, or by flooding the world with fiat in order to – as Every put it – “bail out the tiny elite who own most financial assets, and in doing so prove Moscow right in the eyes of the rest of the world.” But it's not just the anti-western axis that is taking on the Fed: according to Goldman Sachs, so is the world's most important cartel (where Russia is also a critical voice): OPEC+.
As a result, Goldman – which has laid out the clash between OPEC and the Fed – reiterates both its bullish oil view as well as its preference for long crude timespread positions into year-end.
Looking forward, we expect Russian production to decline into year-end with in turn demand expected to be supported by natural gas to oil switching in Europe and Asia.
Similarly, high volatility and the outsized impact of producer hedging on deferred prices have combined to increase the cost of puts, with a Dec-23 ATM put position requiring a fall in that contract's value to $61/bbl to become profitable at expiration.
In the case of a 1 mb/d headline cut, the former regime would lead us to expect a c.$13/bbl positive impact on Brent prices over 12 months, albeit mostly front-loaded, while the latter regime suggests a distinct possibility of a c.$20/bbl spike higher when inventories deplete again and demand destruction remains the balancing mechanism of last resort.