If you were writing headlines Tuesday about why oil prices were rallying, there was a smoking gun provided by the Saudis announcing plans to cut back their exports to Asia.  Indeed many news outlets jumped on that story as the catalyst for the rally, and who can blame them when that’s so much easier to understand than the murky world of technical indicators and fund flows.

The problem with the theory (besides the Saudi claims being almost impossible to actually track of course) is that the US WTI contract leading the charge, not Brent, which is what would be expected if this really was a story about tightening supplies overseas.  Another problem with that theory appeared today when OPEC announced its production had increased again, as Libya, Nigeria and Iraq all saw notable increases last month, offsetting a big drop from Venezuela, and once again making the output cut discussions hard to take seriously.

The OPEC monthly oil market report did have some good news in terms of increased optimism for the global economy and global oil demand.  The report also noted that US Distillate inventories are tight compared to the past several years due to Harvey, and could create issues with a colder-than-normal winter forecast.  That note could help explain why diesel futures are leading the push higher this morning, since it still seems as though refinery operations were not significantly impacted by Nate based on USGC cash market prices.

As we await the delayed inventory reports this week, the WTI vs Brent discussion should continue to take center stage.  Ever since Harvey, Brent has been in backwardation and WTI has been in contango, suggesting the world is getting tight on oil supplies, while the US remains in a glut.  With more than 2 million barrels/day of US oil exports predicted in the past week, it’s possible that the relative strength we’ve seen in WTI so far this week may just be the beginning.

Tropical Storm Ophelia is making its way across the Atlantic and has a chance to become the 10th consecutive hurricane to be named this year, something that hasn’t happened since the late 1800s.  The good news for anyone in the US, is that Ophelia is going East across the Atlantic and appears to pose a threat only to Portugal.  There are two other disturbances, but both are given low probabilities of formation, meaning we may finally get a quiet week for storm activity next week.

WTI Forward curve, AKA the West Texas Mullet.