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Oil Drifts Despite OPEC Sticking to Baby-Steps in Production Hikes

CommoditiesSep 01, 2021 02:56PM ET
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By Barani Krishnan

Investing.com - The 23 countries that control most of the world’s oil exports stuck with their plan on Wednesday to raise production slowly, instead of quickly as demanded by a White House hurting from high gasoline prices and inflation in the United States.

The resolve of the OPEC+ alliance — which comprises the 13-member Saudi-led Organization of the Petroleum Exporting Countries and a group of 10 other producers steered by Russia — did not immediately spark a rally in crude prices on Wednesday as some thought.

London-traded Brent, the global benchmark for crude, and New York-traded West Texas Intermediate, the benchmark for U.S. oil, initially tumbled on concerns about creeping Covid cases from the Delta variant.

WTI, however, settled up 9 cents, or 0.1%, at $68.25 per barrel. Brent crude finished the session down 4 cents, or 0.06%, at $71.59.

At a virtual meeting Wednesday, OPEC+ chose to continue moving gradually with its plan to boost output in monthly installments of 400,000 barrels a day through the latter end of 2022. 

The White House had asked the alliance to bring production back a lot faster as the average price of gasoline at U.S. pumps stood at 7-year highs of around $3.15 per gallon, owing to tight crude supplies caused by OPEC production cuts over the past year.

Despite the measured output hikes by the alliance now, crude prices have been slow to rally, unlike earlier in the year, due to renewed fears over Covid. Data from end-August showed passenger screenings at U.S. airports having fallen to their lowest since May as travelers appeared to be gripped by worries over the Delta variant. That could hit demand for jet fuel.

The director of the U.S. Centers for Disease Control and Prevention Rochelle Walensky also cautioned unvaccinated Americans on Wednesday to avoid travel during the upcoming Labor Day holiday on Sept. 6. That could weigh on the outlook for both gasoline and jet fuel. 

About 52 percent of the U.S. population, or 174 million people, is fully vaccinated, according to CDC data. Despite that, Covid hospitalizations due to the virus reached a daily average of 100,000 for the first time since last winter’s surge, with officials attributing the surge almost entirely to unvaccinated people.

On the jobs front,  U.S. private sector employers added just about 375,000 positions in August, or 40 percent less than predicted by economists, as the pandemic continued to exert its toll on the labor market,  the ADP National Employment Report showed on Wednesday.

The ADP data on private sector employment came ahead of the August non-farm payrolls report, due from the Labor Department, which will include both public and private sector jobs numbers. Economists are expecting the NFP report to show an addition of 748,000 jobs for last month after a sterling growth of 943,000 jobs in July.

Oil prices dipped despite the U.S. Energy Information Administration reporting a blowout drawdown in  crude inventories for last week.

U.S. commercial crude oil stockpiles fell by 7.17 million barrels in the week to August 27, the EIA said in its Weekly Petroleum Status Report. That was the largest weekly drawdown since the week to July 16, when some 7.90 million barrels were used up.

Analysts had forecast a draw of 3.1 million barrels for last week, just slightly above the 2.98 million drop registered during the week to Aug 20. After the data release, some cited Hurricane Ida, which caused a huge shutdown of oil production last week, as one possible reason for the outsized draw.

Ida pummeled Louisiana as a Category 4 hurricane, forcing over a loss of 1.74 million barrels per day equivalent of oil production. That accounted for 95 percent of the output on the Gulf of Mexico crude and natural gas platforms. Ida also shut the largest  privately-owned US crude terminal and nearly half of the country’s refining capacity. 

Gasoline stockpiles also fell more than expected last week, drawing down 1.73 million barrels against an expected decline of 550,000, the EIA data showed.

Distillates inventories bucked the trend, rising by 1.3 million barrels versus an expected slide of 1.6 million.

Industry officials initially estimated that it could take weeks for oil supplies to normalize from outages caused by Ida. But shortly after its landfall, the hurricane weakened into a tropical storm, prompting some analysts to adjust their expectations on the belief that next week’s EIA data could even show sharp builds in crude and fuel inventories.

Oil Drifts Despite OPEC Sticking to Baby-Steps in Production Hikes
 

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Comments (6)
Alan Rice
Alan Rice Sep 01, 2021 3:53PM ET
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Drifting: Question regarding sustainability of LIFE ON EARTH past 2150 AD.
ben sc
ben sc Sep 01, 2021 2:19PM ET
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Alt: analysts are way off again.
Barani Krishnan
Barani Krishnan Sep 01, 2021 2:19PM ET
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It's easy to take potshots at analysts who crunch reams of data each week to make a calculated guess on where inventories stand, with the challenge particularly complicated by extraordinary events like a hurricane. To be sure, all top agencies, from the EIA to IEA and even OPEC barely get their estimates right on supply/demand. The winning rate is probably 30% at best. Try doing what these people do and you'll know.
Barani Krishnan
Barani Krishnan Sep 01, 2021 2:19PM ET
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The other thing which most readers here are unaware of is that the weekly analysts' estimates published by Reuters, Bloomberg and Investing.com are a consensus of multiple numbers put out by the various houses. There are highs and lows, which if taken on their own, might be correct with the number put out by the EIA. To summarily dismiss the estimates as being off the mark misses the point on how the whole thing is gathered and presented.
Inetianbor Oseagwina
Inetianbor Oseagwina Sep 01, 2021 11:54AM ET
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What's is the outcome of the OPEC+ meeting?
Me comment
Me comment Sep 01, 2021 11:23AM ET
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So with the oil rigs and refineries shut down starting Wednesday last week guess the expert analysts forgot to account for that in their predictions. Bet they miss this weeks estimate to be reported next Wednesday.
Joseph Armour
Joseph Armour Sep 01, 2021 11:07AM ET
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Another example of the so-called experts not having the ability to deliver credible analysis and predictions regarding economic activity. Several reasons come to mind. One: their sources are not being honest with the data being given. Two: Economic models being used for predictions do not reflect the real world. Three: The individuals making predictions are deliberately skewing their predictions to generate volatility in the marker. Four: The individuals making predictions are even worse at their jobs than Meteorologists are. Five: Human behavior is not as predictible as the new state-mandated-godless religion psychology would have you believe.
freedom byforce
freedom byforce Sep 01, 2021 11:07AM ET
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all of the above. I agree with your analysis.
Josh Davis
Josh Davis Sep 01, 2021 11:07AM ET
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Spot on
DJ Ryte
DJ Ryte Sep 01, 2021 10:48AM ET
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First stage of the "New Green Deal?"--disrupt fossil fuel supply chain?
Anna Ja
Anna Ja Sep 01, 2021 10:48AM ET
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the answer is always money or power or both
doug str
doug str Sep 01, 2021 10:48AM ET
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High price oil makes EV's more economical.
Josh Davis
Josh Davis Sep 01, 2021 10:48AM ET
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doug str not really but lol
 
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