They said it wouldn’t get done, but OPEC went ahead and did it anyway. In Algiers, OPEC agreed to reduce oil output to a range of 32.5 to 33 million barrels a day that could eventually lead to a larger cut. But, it is not just the amount of oil. The key is that the cartel agreed to anything.
After downplaying the odds of a deal getting done, the concessions by Saudi Arabia to carry most of the cuts, and the pledge by Non-OPEC member Russia to join a cut, is even rarer than an OPEC cut. Now instead of “pump at will”, there will be some restraint in the global oil markets and this should put the floor in on oil prices. We felt that a deal would get done, and it has. While the details won’t be ironed out until the November meeting, the truth is that this is a historic deal.
This deal, along with trillion of dollars in oil Cap x, cuts the supply/demand balance and will tighten significantly in the coming years. I believe that OPEC has declared victory in the OPEC production war and they feel confident that they can cut production without fear that the shale oil producers will steal their market share.
We are seeing U.S. oil supply continuing to tighten. The Energy Information Administration (EIA) reported that U.S. crude supply fell by 1.9 million barrels last week, which is the 4th largest expected drop in a row. Supply at the Cushing Oklahoma delivery point fell by 600,000 barrels, as well. U.S. oil production also fell to 8,497 million barrels a day from 8,512 million barrels a day from the week before. This was also supportive. However, a build in gasoline supply of 2 million barrels a day muted excitement.
The EIA reported that refineries operated at 90.1% of their operable capacity last week. U.S. crude oil inventories are at historically high levels for this time of year. The EIA says that total products supplied over the last four-week period averaged over 20.0 million barrels per day, up by 2.7% from the same period last year. Over the last four weeks, moto gasoline product supplied averaged 9.4 million barrels per day, up by 3.6% from the same period last year.
Distillate fuel product supplied averaged over 3.5 million barrels per day over the last four weeks, down by 6.4% from the same period last year. Jet fuel product supplied is up 0.9% compared to the same four-week period last year.
Tropical Storm Matthew has formed and the National Hurricane Center is issuing advisories on Tropical Storm Matthew, located over the eastern Caribbean Sea. The storm looks to be turning north heading over Cuba and the Dominican Republic. This storm will slow down oil tankers.