Jaw dropping crude data

March 8, 2017 08:38 AM
Daily Energy Market Analysis

The Saudi Oil Minister, Khalid Al-Falih, says that OPEC cuts have exceeded expectations of 1.5 million barrels of oil a day, but you would not know it by the jaw dropping 11.6-million-barrel crude oil increase reported by the American Petroleum Institute (API)! Even with a bullish 5-million-barrel drop in gasoline supply, the largest weekly drop since April of 2014, and a supportive 2.9-million-barrel drop in distillates the shock value of that massive crude oil build was too hard to just shake off. 

We know that the United States reported that it would be selling 10 million barrels of oil from the Strategic Petroleum Reserve (SPR) last month and it is possible that some of that increase might have been because of that sale. We will look at the Energy Information Administration (EIA) weekly status report to see if we saw a corresponding drop in SPR supply. SPR supply did fall last week, but only by a modest amount. The API is voluntary reporting they may report in a different time frame as to when the private entity reports its supply. The EIA reports it at the time it leaves their storage. The API also reported a 788,000-barrel build in inventories at the Cushing, Okla., facility, which would be the third increase in the last 6 weeks. 

This comes as OPEC and Non-OPEC members say that it is very possible that they are going to extend production cuts. As reported by the Investor Business Daily “Saudi Arabia's energy minister said Tuesday that "conformity by all" will be a criterion for OPEC's de facto leader to agree on any extension of a production-cut pact. At IHS' CERAWeek energy conference in Houston, Khalid Al-Falih said the output deal is "so far so good," but his country "will not bear the burden of free rides" by others in the agreement as Saudi Arabia takes the brunt of the production cuts. "This is for the benefit of all and needs to be achieved by all," he added. 

Falih said Russia's cuts in February weren't enough. But Russian Energy Minister Alexander Novak told him Monday that cuts for the first week of March were better. It's hard to tell which countries Al-Falih could be talking about, but they could include Russia, Iran, Iraq and Libya. But I think Saudi Arabia is laying down its initial negotiating position, with statements from other oil ministers to follow. While markets were concerned how Iran would respond as an exempt country. There hasn't been a lot of disappointment with Iran's production; Iran's not going as crazy as they could have.

As I told IBD, I think we’re are going to see some negotiations but we are at the very least headed toward an extension of cuts if not a deal to make even a larger production cut. It seems that the OPEC oil ministers are not so worried about shale. In fact, the Saudi Oil minister even welcomed shale producers to the game and complimented the Trump Administration on their pro-business and pro-growth agenda.

Maybe they are not worried because as the Energy Information Administration predicts in their Short-Term Energy Outlook that U.S. output hits a record 9.7 million barrels a day. That increase is far short of the 1,5 million barrels a day that OPEC has subtracted. The U.S. increase led by the Permian basin where all the rigs are being added.

In North America, there are 1091 active rigs down four from last week. There were 756 rigs running in the United States, up two from last week, up 267 from last year. Wyoming is at 17, down two. North Dakota is at 37, up three. Colorado is at 25, down one. Texas saved the day by adding six.

The EIA, in their report, also shows that high gasoline inventories put downward pressure on fuel prices at the pump during February, but the average gasoline price is expected to slowly climb and reach a monthly average of $2.51 a gallon in July as the summer driving season increases demand for gasoline and more-expensive summer-grade fuel blends are required.

Natural Gas: This winter’s warm weather is cutting into U.S. natural gas demand, with natural gas consumption during February expected to be the lowest for the month in eight years. Lower natural gas demand and above-average gas inventories are putting downward pressure on U.S. natural gas prices, as the average spot price for natural gas is now revised down 12% for 2017.

Electricity: While U.S. total electricity generation is expected to decline almost 1% this year, the share of coal-fired generation is forecast to increase.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.