OPEC Members Have Reached A Deal

The OPEC members have reached a deal – allegedly anyway – and prices are responding in bullish fashion as the market awaits confirmation.  So far Brent and WTI are both up $1.60/barrel and refined products are up either side of 4 cents as it appears the deal will be middle of the road rather than a game changer.

Reuters’ twitter feed is saying the agreement is for a 1 million barrel per day nominal increase, while 2 other feeds are suggesting the agreement is for only 600,000 barrels/day.  Other rumors suggest that the cartel was able to find consensus on a plan to simply return to 100% compliance on the existing output cut deal – which was inadvertently exceeded because of Venezuela’s collapse.

So far the only official word from the meeting is the opening statement in which members were reminded to “…tread carefully; none of us want to see the return to the kind of volatility that allows pessimism to return to the markets.”

We’ll still have to wait and see to say for sure, but at this point, it seems like this meeting will go down as a relatively benign event, rather than a paradigm shift like the “No-Action” meeting in 2014 that helped drive prices to decade-long-lows, or the output cut meeting in 2016 that helped prices find their floor.

RIN Values rose sharply to their highest levels in 2 months Thursday following a Reuters report that the EPA may be pushing back announcing the 2019 volume obligation targets for the RFS.  With the head of the EPA under growing pressure, and farm groups suing the agency over small refinery waivers, bets are being placed that the agency may try to find a compromise by placing a larger burden on large refiners to make up for the relief given to smaller plants

 

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Energy Futures Slipping Once Again

Energy futures are slipping once again as it appears a compromise is being discussed ahead of the official OPEC announcement tomorrow, and Iran’s oil minister once again finds himself at center stage.

Wednesday’s DOE report had something for both bulls and bears with a large decline in US Oil stocks, while products continued to build as refinery runs cranked up.

US crude oil output held steady at 10.9 million barrels last week, the first time in 17 weeks that number hasn’t increased.  Crude oil exports surged back above 2 million barrels/day last week, and should continue to grow as new processes come on line.  This week an experimental program to partially load the world’s largest crude tankers in the Houston area is being tested for the first time.

Implied demand charts continue to look like the scans of a heart in V Fib, with total US petroleum demand consumption estimate dropping 7% and gasoline implied demand dropping by 5% on the week, after record-setting gains the week prior.

After a busy spring maintenance period, US refiners have found their record-setting form again – despite two smaller plans in UT and WI remaining offline due to fires earlier in the year.  Total refinery runs reached their highest ever for a week in June, and the 2nd highest total run rate ever last week.  Diesel seems to be the focus as output reached the 3rd highest weekly total on record, a key figure to watch over the next year as the marine diesel spec changes approach, an event many believe will be the most disruptive to the industry in more than a decade.

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Energy Markets Await Friday’s OPEC Meeting

Oil is not a weapon” may be the quote of the day as energy markets await Friday’s OPEC meeting.

That quote came from the Iranian oil minister who was probably just leaving school during the oil embargos of the 1970s when the “Oil Weapon” was first unleashed by OPEC members. The quote was a response to the US President calling out the cartel again, and perhaps proving that the pen is mightier than the sword, even if it’s actually a stylus.

If you’re looking for a reason why prices may still go higher even if OPEC announces a 1 million barrel production increase, read what the folks at Goldman Sachs have to say (publicly) about it.

Prices are chopping back and forth so far as equity markets around the world seem to have stabilized after yesterday’s heavy selling.  WTI is outperforming the rest of the complex this morning after the API was reported to show a 3 million barrel decline in US crude oil inventories last week, compared to builds in refined products of 2.1 million barrels for gasoline and .75 million barrels for distillates.

The DOE’s weekly inventory report is due out at its normal time of 9:30 central today.  On Monday the DOE released its monthly drilling productivity report, showing once again how US producers continue to leverage their newfound efficiencies to do more with less.

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Oil Shipments Take Center Stage In Trade Drama

Energy futures are selling off again following a 1 day recovery rally, as oil shipments take center stage in the trade drama between the US & China while we await the OPEC performance on Friday.

Stock markets around the world are seeing heavy selling today as the tariff threats are escalating again, including China announcing a potential 25% tax on oil imports from the US.  Don’t worry though, your iPhone is safe.

China has ramped up its imports of US oil since the export restrictions were lifted taking roughly 20% of the total barrels shipped overseas.  WTI has slumped vs Brent following the announcement as the threat would shake up the delivery options for US producers who are already struggling with transportation bottlenecks.  If that tariff comes to fruition, it could be good news for Iran as the Chinese could supplement their supplies with Iranian barrels and help avoid the impact of economic sanctions.

Many expect that OPEC will announce some level of production increase on Friday, since the cartel inadvertently overshot its reductions thanks to Venezuela’s ineptitude.  Forecasts vary between 200,000 to 1.5 million barrels/day increase.  Somewhere in between those numbers should get a limited reaction while an announcement with a plan outside of that range is likely to get a large one.

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Petroleum Futures Trying To Carve Out Bottom

Petroleum futures are trying to carve out a bottom this morning, following a brutal sell-off that pushed most contracts to their lowest levels in 2 months overnight, with the big 4 futures contracts all dropping 10% or more from their May peaks.

Since we won’t get the commitments of traders data until this Friday, it’s impossible to say for sure, but the crescendo of selling we saw last Friday certainly had the feel of some of the record setting speculative length that’s been hanging around for most of the past year finally deciding to head for the exits.

This is expected to be a pivotal week as the OPEC meeting Friday should let the world know how much production the cartel and its allies are prepared to restore now that their inventory goals have been met.  From a technical perspective this could be an equally important week as the bullish trend-lines in place for the past year are once again under pressure.

Money managers increased their net-long positions in Brent & WTI modestly last week, snapping a 2 month-long streak of liquidation.   Based on what happened in the trading sessions after the data was compiled last Tuesday, it seems like those who added bets on higher prices may want a mulligan.  Heavy liquidation in RBOB speculative length continued for a 3rd week, and based on what we saw last Friday, it seems a safe bet that we’ll see that trend continue for a 4th.

Baker Hughes reported 1 more oil rig was put to work last week, bringing the US total to a fresh 3 year high at 862 active rigs.

While strength in the US dollar is getting credit for some of the pullback in prices we’ve seen the past few weeks, the WSJ points out that the combination of a stronger dollar and higher oil prices is a dangerous combination for many economies around the world.

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