Oil Soars After Surprise Output Cut by OPEC+

U.S. ethanol gets positive news from Japan

Crude is back in the news following a shock oil output cut from major producers in the OPEC+ group. WTI crude futures surged past $81 a barrel at the open to its highest price since late January, with the May contract rallying as much as 8%, while June Brent crude opened at its best level in nearly a month, advancing by the same percentage to over $86/bbl.

Goldman Sachs changed its oil production and price forecasts (link) on the latest announcement, which comes before the busy summer travel season. “Winners from the OPEC+ cuts include Saudi Arabia, Warren Buffett and EV manufacturers, while losers include airlines and hopes for an economic soft landing,” Logan Kane writes in a new analysis published on Seeking Alpha. It also comes amid an “ongoing chess match between the Biden administration and the Kingdom of Saudi Arabia,” with reports suggesting that Washington angered Riyadh by declining to refill the Strategic Petroleum Reserve when crude oil prices were low, so the Kingdom “decided to get some payback.”

Starting this month, drivers will face tightened U.S. Treasury Department rules regarding eligibility for an income tax credit of up to $7,500 for buying a new electric vehicle. With few of the 91 EVs currently qualifying for the credit eligible starting on April 18, “Which EVs—make and model—now qualify for the tax credit...and which don’t?” wonders one industry trade group insider.

USDA, the Department of Announcements, announced another $1 billion program on Friday as we alerted. See the Energy section for details.

The U.S. ethanol industry finally got some positive news… from Japan. See Trade Policy section.

McDonald’s is temporarily closing its U.S. offices this week as it prepares to inform corporate employees about layoffs undertaken by the burger giant as part of a broader company restructuring. McDonald’s last week told U.S. employees and some international staff that they should work from home from Monday through Wednesday so it can deliver staffing decisions virtually. The company declined to comment Sunday on the number of employees being laid off.

Russian forces shelled a town near the eastern city of Bakhmut on Sunday, killing six people and wounding eight. Russia had assumed charge of the monthlong rotating presidency of the U.N. Security Council on Saturday, a development Ukrainian President Volodymyr Zelensky said was undermining the body’s credibility. Moscow has said it intends to exercise all of its rights in holding the presidency, which provides it the power to organize sessions, and is expected to use some of them to criticize U.S. arms exports to Ukraine.

The death toll from the tornadoes that tore through the South and Midwest this weekend rose to at least 32. Another widespread severe weather outbreak is expected Tuesday afternoon in the Mississippi Valley and into the Ohio and Tennessee Valleys, including across areas still reeling from recent severe storms, according to the National Weather Service. Central Arkansas, eastern Iowa, and northern Illinois will see a new round of storms Tuesday that threaten to bring more tornadoes, large hail and damaging winds. A “moderate” risk of severe storms has also been issued across parts of eastern Iowa, northeastern Missouri, and western Illinois.

Equities today: Global stock markets were mixed overnight. U.S. stock indexes are pointed toward mixed openings. In Asia, Japan +0.5%. Hong Kong +0.1%. China +0.7%. India +0.2%. In Europe, at midday, London +0.7%. Paris +0.5%. Frankfurt +0.1%.

U.S. equities Friday: The Dow closed up 415.12 points, o1.3%, at 33,274.15. Nasdaq increased 208.44 points, 1.7%, to 12,221.91. The S&P 500 rose 58.48 points, 1.4%, at 4,109.31.

The major indexes ended the quarter higher. The S&P 500 is up 7% since the start of the year, its second straight quarterly gain. The Nasdaq Composite Index is up 17%, its largest quarterly gain since 2020.

Agriculture markets Friday:

• Corn: May corn closed 11 cents higher at $6.60 1/2, near the sessions high, gaining 17 1/2 cents on the week.
• Soy complex: May soybeans rallied 31 cents to 15.05 1/2, ending the session above the 40-day moving average and gaining 77 1/4 cents on the week. May meal rose $6.10 to $466.00, a $20.90 gain from a week-ago, while May soyoil rose 112 points to 55.49 cents, a 222-point gain on the week.
• Wheat: May SRW wheat futures closed steady at $6.92 1/4 and near mid-range. For the week, May SRW rose 3 3/4 cents. May HRW wheat gained 6 1/4 cents at $8.77 3/4, near mid-range and seeing a technically bullish weekly and monthly high close.
• Cotton: May cotton fell 72 points to 82.78 cents but gained 458 points on the week.
• Cattle: Nearby April live cattle futures ended Friday at $168.35, up 80 cents from Thursday. June cattle futures climbed $1.125 to $162.125. That represented a weekly surge of $5.525. May feeder futures closed at $205.25, up 80 cents on the day and $7.70 on the week. Cash cattle prices finished the week sharply higher than the modest gain posted the prior week.
• Hogs: June lean hog futures rose 2 1/2 cents to $91.625 and near mid-range. For the week, June hogs gained 20 cents.
  

Ag markets today: Corn, soybeans and wheat posted active followthrough buying overnight on help from surging crude oil futures. As of 7:30 a.m. ET, corn futures were trading 5 to 6 cents higher, soybeans were 7 to 11 cents higher and wheat futures were 8 to 12 cents higher. Front-month crude oil futures were more than $4.50 higher, and the U.S. dollar index was marginally lower.

Market analyst quote of note: “It’s a shock move by OPEC-plus as the cartel had previously vowed to maintain a steady supply. This is a significant reduction in a market in which supply was expected to be tight for the second half of 2023,” said Nigel Green of the deVere Group. “The production cuts could see prices close to $100 a barrel due to demand from a reopening China and as Russia has slashed production due to sanctions from the West. The dramatic cut will only add to pressing global inflationary squeezes.”

Market perspectives:

• Outside markets: The U.S. dollar index was weaker amid broad strength in several foreign currencies versus the greenback. The yield on the 10-year U.S. Treasury note has firmed to trade around 3.50% with a generally higher tone in global government bond yields. Crude oil futures have added to earlier gains after the OPEC+ output cut, with U.S. crude around $80.65 per barrel and Brent around $85 per barrel. Gold and silver futures are mixed, with gold higher around $1,994 per troy ounce and silver slightly weaker around $24.13 per troy ounce.

• NWS weather outlook: There is a Moderate Risk of severe thunderstorms over parts of the Midwest on Tuesday... ...Blizzard conditions over the northern Plains on north side of strong surface low... ...Very warm across the East and winter-like cold across the West and the Dakotas.

Items in Pro Farmer’s First Thing Today include:

• Bullish start to the week for grain markets
• Argentina to reintroduce ‘soy dollar’ policy today
• Soy crush, corn-for-ethanol use expected to fall from January but top year-ago
• Bullish cash cattle hopes, but...
• Cash hog drop continues

— Anger is rising among farmers in eastern Europe who say a rush glut of grain from Ukraine threatens their businesses, and it’s steadily eroding political goodwill. Poland and other neighboring states agreed to help get grain out of Ukraine and on to global markets after the Russian invasion blocked exports last year. The hoard of grain is becoming a political issue as protests spill into the streets, Bloomberg reports (link).

— Russia blast kills military blogger. A female suspect has been detained in connection with an explosion Sunday at a St. Petersburg cafe that killed a prominent Russian military blogger and wounded at least 32 others. The blast killed blogger Vladlen Tatarsky, according to Russian state media, in what appeared to be an attack on a high-profile pro-Kremlin figure.

— White House nixes GOP plan to jump-start talks on debt ceiling. The White House continues to insist there will be no debt-limit negotiations with House Speaker Kevin McCarthy (R-Calif.), dismissing the latest Republican strategy to draw President Biden to the table — a bill that would raise the cap but also include spending cuts. “We’ve been very, very clear about this, the debt limit should be dealt with without conditions, without negotiations,” White House Press Secretary Karine Jean-Pierre told reporters Friday when asked about the prospect of House legislation pairing a debt-limit hike with spending cuts and other Republican priorities.

— Funds for Social Security and the Medicare trust fund that pays for hospital expenses are expected to be depleted by 2033 and 2031, respectively, spelling trouble for the two major financial safety nets for older Americans.

— China is studying Russia’s war in Ukraine as it considers a potential invasion of Taiwan. Link for more via the New York Times.

— China’s factory activity cools in March. China’s Caixin/S&P Global manufacturing purchasing managers index (PMI) fell to 50.0 in March from 51.6 the previous month. Both output and new orders rose at slower paces while foreign sales and employment fell.

— House Speaker Kevin McCarthy (R-Calif.) is expected to meet this week with Taiwanese President Tsai Ing-wen in California. Beijing has said it will retaliate if McCarthy follows through with the meeting, but the California Republican doesn’t seem moved by the threat.

On Friday, House Minority Leader Hakeem Jeffries (D-N.Y.) met with Tsai in New York.

— China wheat auctions stay strong, rice demand limited. China sold 128,499 MT or 92.6% of state-owned wheat reserves put up for auction last week at an average price of 2,628 yuan ($381.58) per metric ton. The average sales price was down notably from 2,733 yuan per metric ton the previous week. China sold only 145,549 MMT (16.1%) of state-owned rice reserves put up for auction at an average sales price of 2,489 yuan ($361.16) per metric ton.

— USTR Tai: U.S. could capture up to 100% of Japan ethanol market. Japan on Friday announced a new biofuels policy. It could allow the U.S. to capture up to 100% of Japan’s on-road ethanol market, U.S. Trade Representative (USTR) Katherine Tai said Friday. “The new biofuels policy Japan announced is the result of close collaboration between our two countries and it will further allow U.S. producers to meet Japan’s demand for more diverse energy sources,” Tai said in a news release.

According to the new biofuels policy under the Sophisticated Methods of Energy Supply Structure Act, exports of U.S. ethanol could increase by over 80 million gallons annually, representing an additional $150-200 million in exports each year, Tai said.

Japanese regulators revised the U.S. corn ethanol carbon intensity score that allows U.S. ethanol to fully access the entire bioethanol market — up from 66% access in 2021 based on continued improvement in reduction of carbon emission by the U.S. ethanol industry.

— USTR released its annual report summarizing international trade barriers blocking U.S. goods and services, and barriers to U.S. ag exports are again a major focus. Link to report.

— OPEC+ oil cartel announced a surprise cut in production of more than 1 million barrels a day, again pitting Saudi Arabia against U.S. interests. The decision by OPEC+, which includes Russia, reneges on previous assurances that it would hold supply steady and poses new inflation risks for the global economy, with crude soaring on the news. The White House said the move was ill-advised. But a spokesperson noted the price of gas is down more than $1.50 since last summer’s peak.

Details and impact: On Sunday, Saudi Arabia announced that it would start “a voluntary reduction” of its production of crude oil, alongside other members. The countries slashing production include OPEC+ members Russia, Iraq, the United Arab Emirates, Kuwait, Algeria and Oman. The collective output cut by the countries totals 1.66 million barrels per day, analysts say, which could mean inflation remains higher for longer. Oil futures initially rose by as much as 8% and are now trading around 4% higher U.S. benchmark crude oil rose $4.24 to $79.91 per barrel, or 5.6%, in electronic trading. Brent crude, the pricing basis for international oils, gained $4.35 to $84.24 per barrel, or 5.4%. There were bigger leaps in nearby prices, meaning backwardation — a gauge of market tightness — in key parts of the curve jumped. The spread between the nearest two December contracts headed for its biggest increase since October. U.S. gasoline prices may rise 26¢ per gallon. The move will increase tensions between Washington and Riyadh. Japan, meanwhile, said it would start buying Russian oil above the $60-a-barrel price cap imposed by Western nations.

Traders were blindsided by the move, given that only a few weeks ago the top Saudi oil official, Prince Abdulaziz bin Salman, was insisting that production quotas set by OPEC+ in 2022 were “here to stay for the rest of the year, period.”

Bottom line: The surplus expected this quarter likely will be whittled down, and reductions in inventories in the second half should be much more pronounced.

— Bidding open for $1 billion in rural energy grants. Farmers and rural businesses can apply for $1 billion in renewable energy grants starting April 1, USDA announced Friday, as we alerted. Grants under the system, dubbed the Rural Energy for America Program, can be used by producers and small businesses to either install renewable energy systems or improve their energy efficiency. Federal officials said the grants will help mitigate climate change while cutting energy costs. The biggest share applicants can request to be covered by USDA is 50% of the total project cost.

— McDonald’s is preparing to give layoff notices. McDonald’s has reportedly told corporate employees that its U.S. offices will remain closed early this week so the company can announce layoffs as part of a broad restructuring. The fast-food chain beat analyst estimates for Q4 earnings and revenues in January, but spooked the market after management warned that higher input costs meant 2023 operating margins could fall below what were then analysts’ consensus estimates. At the time, McDonald’s also said it would review corporate staffing levels as part of its business strategy.

— The House and Senate are off, again, and will not return until April 17.

— The U.S. government has sold nearly 20% of the 50,000 bitcoin it seized in the case of a hack of the Silk Road marketplace, netting more than $215 million in the process, according to a memo filed in the Southern District of New York. The sale didn’t appear to impact bitcoin’s price, which gained 2.43% on the day of the transaction.

— LSU beat Iowa. Iowa’s win over South Carolina in the women’s basketball tournament drew 5.5 million viewers, the largest audience ever for a semifinal. But LSU’s Jasmine Carson scored 22 points off the bench as the third-seeded Tigers rolled to a 102-85 win over tournament darling Iowa and Caitlin Clark.

Angel Reese displayed some classless behavior during her LSU Tigers won the women’s college basketball national championship on Sunday. Reese had 15 points, 10 rebounds and 5 assists in LSU’s 102-85 win over Iowa for the national championship. In the final minute of the game, Reese made it a point to taunt Iowa star Caitlin Clark. Reese did the John Cena “you can’t see me” face move and also pointed to her finger to say that she was getting a ring and Clark wasn’t.

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