Oil Mixed On Doubts About Early OPEC+ MeetingOil swings between gains and losses as recovery hopes are offset by worries about extension of current production cuts.
Oil Video 03.06.20.
Crude Inventories Unexpectedly Fall
Yesterday, API Crude Oil Stock Change report showed that crude oil inventories decreased by 0.5 million barrels.
Today, the EIA Weekly Petroleum Status report stated that crude oil inventories declined by 2.1 million barrels. Analysts were expecting to see an increase of 3 million barrels.
However, the data is not that bullish since gasoline inventories increased by 2.8 million barrels while distillate fuel inventories increased by as much as 9.9 million barrels.
The U.S. domestic oil production continues to fall. Oil production declined from 11.4 million barrels per day (bpd) to 11.2 million bpd. Currently, the U.S. domestic oil production looks ready to decline below 11 million bpd in the next few weeks.
The decline of the U.S. domestic production is a bullish development, but demand should catch up to deal with excessive inventories. According to EIA, crude oil inventories are about 12% above the five-year average for this time of the year while distillate fuel inventories are about 28% above the five-year average for this time of the year.
Put simply, there’s a lot of work to be done on the inventory front in order to normalize the situation.
Oil Finds Itself Under Some Pressure As Doubts About Early OPEC+ Meeting Increase
Reuters has recently reported that Saudi Arabia and Russia reached a preliminary agreement to extend current oil production cuts by one month.
Yesterday, I wrote that the current oil production cuts were unlikely to be extended for more than two months, but I’d note that a potential one-month extension is rather disappointing.
Anyway, even a one-month extension will not happen in case countries like Iraq and Nigeria fail to stick to their quotas, according to Bloomberg. Both countries have delivered less than half of the agreed production cuts.
Not surprisingly, both Saudi Arabia and Russia want to see full compliance from other members of the deal before they will be ready to extend existing production cuts for an additional month.
Currently, the oil market is supported by general optimism about recovery, so it remains to be seen whether news about the challenges in OPEC+ negotiations can lead to meaningful pressure on oil prices.
For a look at all of today’s economic events, check out our economic calendar.