• Crude oil prices rallied on Tuesday morning as OPEC+ leaked that it may cut oil production 'when and if Iranian production returns'.
• New OPEC+ output cuts could promptly offset any incremental production from Iran.
• Uncertainty about the Iran nuclear deal continues to keep markets on edge.

Two months ago, we said that with oil tumbling from its post-Ukraine war highs, it's only a matter of time before OPEC+ makes a mockery of the Biden-MBS "amicable" fistbump and resumes cutting output.

And then, just 2 weeks ago, we followed up with the clearest hint yet that OPEC is about to cut output in "OPEC Sets The Stage For Output Cuts, Sees Oil Market Tipping Into Surplus In Clash With IEA Forecast" 

We were, of course, proven right last night when Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman echoed what we discussed back in July in "Inside The Oil Market's Jekyll-And-Hyde Moment", when he said that the “extreme” volatility and lack of liquidity mean the futures market is increasingly disconnected from fundamentals and OPEC+ may be forced to cut production.

“The paper and physical markets have become increasingly more disconnected,” he said in response to written questions from Bloomberg News.

The news was enough to spark a powerful reversal in the increasingly disconnected from reality paper price of oil, which had tumbled amid the now daily bullshit reports of an "imminent" Iran deal (narrator: there will be no new Iran/JCPOA deal) but finally soared from a post-Ukraine war low of $85 earlier this week and Brent is on the verge of rising back over $100.

Fast forward to today when moments ago WTI hit a fresh session high over $94 when Bloomberg's OPEC+ output cut story was reaffirmed, this time from Reuters, which moments ago reported that OPEC+ would lean toward an oil output cut when and if Iranian production returns. In other words, OPEC+ will promptly offset any incremental production from Iran, which of course, is a non-starter, since Iran already sells all of its production to China and instead all that will happen is that Iran's 50mm barrels of offshore storage will hit the market in a one time event. 

Furthermore, as noted above, there will not actually be an Iran deal as both sides benefit from an indefinite stalemate (as Goldman explained), but the mere risk has caused oil to tumble about $20. Well no more, as it is now clear that Saudi Arabia wants a Brent price in the triple digits, and it will easily achieve it one way or another, whether through incremental increases in Chinese demand - which will come back sooner or later - or through a decline in supply. 

The funniest thing about the above, is just how much of a non-factor Biden's demands for more output will prove to be. Yes, OPEC+ agreed to its smallest every production boost last month. But it is Biden's push for an Iran deal that has prompted OPEC+ to leak the news that any more progress on an Iran deal will not be tolerated by OPEC+ which will more than offset any incremental Iran output gains.

Bottom line: we have seen the lows for oil, and with the US SPR drain almost over, we are looking at far higher oil and gas prices from here.

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The post Brent Crude Zooms Towards $100 as OPEC+ Leaks That It May Cut Production Again first appeared in Oilprice.com on August 23, 2022