The Saudi Oil Minister Khalid al-Falih, said he will do whatever it takes. Crude oil prices have regained stability after the massive washout last week. The selling drove oil to the point where we were either going back into a recession or at the very least at a point where shale would be in big trouble.
The market, while still wobbly, found some comfort in the fact that OPEC and Russia have but all agreed to extend production cuts into the new year. In fact, Falih said he would do whatever it takes to end the supply glut and would extend cuts into the new year.
Falih, as reported by Dow jones, said that markets had improved from last year's lows, when crude prices fell below $30 per barrel. "I believe the worst is now behind us with multiple leading indicators showing that supply-demand balances are in deficit and the market is moving towards rebalancing," he said. "We should expect healthier markets going forward." He also expected global oil demand to grow at a rate close to last year. In China, oil demand growth should match last year's due to a robust transport sector, while India should record healthy growth, he said.
Russia is also on board. The Russian energy minister Alexander Novak, says that he supported continuing the cuts, predicting stronger oil demand would make them more effective in the coming months. The Financial Times reported he said that “We are discussing several scenarios and believe extension for a longer period will help speed up market rebalancing.”
Despite the big selloff, I agree with the Saudi and Russian oil minister. We are on a path to global market tightening. Obviously, the rise in U.S. output has slowed the market balancing but global off shore storage has been emptied adding to storage numbers. We should see global inventories fall in the coming weeks. In fact, the drops in inventory could start to catch oil briars off guard. Hedge funds that drove positions to a record high have been bloodied so the comeback on crude may start off modestly.
Tonight we should see crude supply fall by three million barrels in the American Petroleum Institute report. We may see modest drops in oil products as well. Gas prices at the pump have been falling as refiners pumped out supply ahead of the Memorial Day weekend.