Crude oil jumps after data shows surprise U.S. stock draw




This was in response to reports that Saudi Arabia has increased oil production above 10 million barrels a day, raising concerns about a global oil glut. “We will see what levels of production are”.

US crude inventories slid by 237,000 bbl last week to 528.2 million, according to the Energy Information Administration. OPEC has broadly complied, but non-OPEC states have shown far less commitment. The growth of shale oil production in the United States will not cause a prolonged decline of oil prices and does not make the Organization of Petroleum Exporting Countries (OPEC) strategy to reduce oil production pointless, according to experts interviewed by TASS.

“Much talk has been made of OPEC, non-OPEC compliance, but the fact is, that when you dig into the numbers, only Saudi Arabia has been pulling its weight”, said Jeffrey Halley, senior market analyst at OANDA brokerage in Singapore. One can only wonder if any consensus was arrived at between these previously warring competitors. Some believe the Saudis could once again flood the market in an attempt to finish off shale producers once and for all.

What does “move too quickly” mean in this context? “The only question is the reaction of shale oil producers”. OPEC’s level of compliance with the agreed cuts is higher than what is in our reference forecast (94% vs. 60%). The US removed the ban on domestically produced oil exports in December 2015. There is the question whether the cartel will consider extending their deal through the end of 2017. If they stick to their guns we are on track for the first global deficit in over a decade.

May-loading for Qatar Marine crude sold at discounts to its official selling price for the first time in four months while spot premiums for Russian and Malaysia’s flagship Kimanis crude have also hit lows. Analyst such as Tamas Varga at London-based PVM brokerage have argued that “If OPEC doesnt extend the deal, that would be price suicide, plain and simple”.

“While U.S. oil output is unlikely to fully replace the cuts to global oil production this year, we remain open to the possibility that U.S. oil supply could surprise to the upside”, said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia. OPECs total output remains 550,000 barrels a day above the target set out in the November 30 deal. “There’s now a strong correlation between price and gasoline demand”. PADD II stocks fell 700k bbls and are lower by 2 percent y/y while PADD III stocks fell 530k bbls and are lower by 6.6 percent y/y.

The disruptions in Canada were the main drivers of spreads this week and helped push WTI M17/Z17 from -1.21 on Tuesday to a top of -0.67 on Friday. This includes both hedge funds and institutional investors.

The Asian surplus will pressure global oil prices and weigh on the budgets of major oil producing nations but may also help spur growth in demand needed to soak up the excess. The rapid unwinding of their positions could have a serious dampening effect on oil prices.

The latest COT positioning data will also be an important focus late in the U.S. session. Prices fell 11 cents to $48.75 on Thursday after surging 2.4 percent the previous session.


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