Oil Rises on OPEC Production Cut - Inflation Impact?

Lots of new subscribers over the weekend - welcome to the brrr.

In our last email on Friday morning we noted markets were expecting the Fed to cut interest rates in the coming months as cooling inflation, gasping banks and soft earnings dictated their hand.

OPEC’s Sunday announcement to cut oil production will force many to rethink that narrative - at least the inflation piece. The production cuts will likely send oil prices higher as you have buyers chasing less supply.

With oil prices sinking for months, OPEC (the multi-country alliance of oil-producing countries) is acting rationally by colluding to limit production, driving prices higher to improve margins.

There’s a piece of this story going underreported, and it’s got to do with the US’ reversal last week on its commitment to replenishing its strategic oil reserves quickly, as originally announced in December.

That reversal represents a very significant reduction in demand, so the producers are playing their hand appropriately. No buyers? They’ll hoard supply.

In other news - while the world bickers over oil, Elon Musk and Tesla continues to ship electric cars at a dizzying pace. They mildly beat Wall Street Expectations in Q1, making 422,800 deliveries vs 420k expected. We continue to hold the stock in the newsletter’s public portfolio (at the bottom of the email).

Here’s what we brrr’d today:

• OPEC Announced Oil Production Cut, Fueling Inflation Fears

• Tesla Delivered 422K cars in Q1, Beating Expectations

OPEC Cuts Oil Production in Sunday Announcement

• Surprise OPEC output cuts: The intergovernmental group of 13 oil-producing countries known as OPEC, led by Saudi Arabia, announced an unexpected cut of 1.16 million barrels per day (bpd), bringing the total volume of cuts to 3.66 million bpd.

• Impact on oil prices: Analysts predict that these new reductions could increase oil prices by $10 per barrel, with oil broker PVM expecting an immediate jump in prices once trading resumes after the weekend.

• US opposition to cuts: The United States sees the move by OPEC+ producers as unwise, arguing that lower oil prices are needed to support economic growth.

• Miffed By Biden admin: The US drained much of its strategic oil reserves in 2022 to increase local supply to provide relief to consumers at the gas pump. After announcing plans to restock quickly(and buying from OPEC), Biden’s energy secretary reversed course last week, saying it’ll take years, potentially upsetting OPEC.

  CNBC, ZeroHedge

Tesla Beats Estimates, Delivers 422K Cars in Q1

• Record Q1 deliveries and production: Tesla reported that it delivered 422,875 electric vehicles and produced 440,808 units in the first quarter of 2023, slightly exceeding Wall Street estimates of around 420,000 deliveries. This marks a record for the company, surpassing its Q4 2022 numbers of 405,278 deliveries and 439,701 units produced.

• Shanghai Gigafactory's significant role: Tesla's Shanghai Gigafactory appears to have contributed to a large percentage of deliveries, with data from the China Passenger Car Association (CPCA) indicating Tesla collectively sold 140,453 China-made vehicles in January and February. If March's numbers are similar, nearly 215,000 (more than 50%) of Q1 deliveries would have originated from Shanghai.

• Price cuts and competition: Tesla initiated price cuts for its EVs in China, fueling a price war with competitors like Xpeng, Nio, Volkswagen, and Mercedes-Benz. The company also implemented price reductions in Europe, Mexico, and the US, with Model Y and Model 3 vehicles seeing up to a 20% drop and Model X and Model S vehicles up to a 9% decrease.

• Stock Is Up: Tesla's share price increased by 6% on Friday and is up 92% YTD

  TechCrunch

AI ART OF THE DAY

A short story today

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