Back in June we joked that it will be very funny when MBS cuts OPEC+ output after fistbumping Biden…

Will be funny when bin Salman cuts OPEC+ output after meeting Biden

— zerohedge (@zerohedge) June 22, 2022

… and two months (and one output hike) later that’s precisely what happened.

And yet, even though Saudi Arabia draw a line in the proverbial desert sand making it clear that any further price drops would likely be met with more output cuts, the price of oil tumbled to fresh 2022 lows as discussed in “Brent Crude Plunges Below $90, Posing A Major Challenge For OPEC+” amid a bizarre ongoing liquidation that some suggest smells like yet another government intervention.

The problem is that with Saudi Arabia having made it clear that Brent below $100 is frowned upon and below $90 is unacceptable even if it means angering Biden, JPMorgan energy strategist Christyan Malek wrote that OPEC is likely to step in with additional cuts if oil downward momentum persists. Some more details from his note (available to pro subscribers):

Monday’s OPEC+ meeting reinforces our view that upcoming agreements will seek to align the market with underlying fundamentals and encourage future investment. Given heightened volatility and a further fall in oil prices since the cut was announced (Brent down 8% month to date as we write), we believe further intervention may be necessary and suggest a cut up to 1mb/d may be needed to stem the downward momentum in prices and realign physical and paper markets which appear disconnected.

Moreover, this may prove necessary in the context of our commodities team forecast of a surplus for next year of up to 0.6mb/d assuming demand rises from 100.2mb/d to 101.1mb/d 2022/23. Despite the near-term volatility, we remain bullish on the energy macro outlook as we forecast a sustained multi-year oil deficit averaging 0.6mb/d 2022-25

And just to ensure that OPEC+ will cut more than even the 1 million speculated by JPM, on Thursday afternoon Energy Secretary Jennifer Granholm told Reuters that Biden’s administration is weighing the need for further releases of crude oil from the nation’s emergency stockpiles after the current program ends in October. This comes on a day when we learned that SPR was drained by a near record 7.5 million barrels and the total inventory in the emergency reserve dropped to just 442 million barrels, the lowest since 1984!

As everyone knows by know, to avoid a bloodbath at the midterms and daily records in gasoline prices, the Biden administration has dispatched about 1 million barrels of oil per day from Strategic Petroleum Reserve (SPR) stockpiles this year to lower fuel prices and pare energy inflation ahead of midterm elections in November, a move which would prove to be a catastrophic blunder if China were to invade Taiwan in the near future.

The releases have helped knock average U.S. retail gasoline prices down to from $3.75 a gallon this week from $5 a gallon in June.

Without the SPR releases, U.S. crude oil inventories overall “would be much lower than they are and they are already below average,” said Phil Flynn, an analyst at Price Futures Group. The price of oil and gas would also be much, much higher.

Granholm also said in a brief interview during a visit to Houston on Thursday that the administration and allies are still discussing the cap on prices for Russian oil purchases. Western governments have floated a price cap to restrict revenues available to Russia amid its invasion of Ukraine. She also said the administration has not ruled out a U.S. fuel export ban, but said it is “certainly not something on top of the list.”

Last month, Granholm secretly wrote to U.S. refiners urging them to replenish low U.S. fuel inventories ahead of winter and to curb rising exports of gasoline and diesel. The letter warned the Biden administration may take unspecified emergency measures if fuel stocks fell further.