July 20, 2017
Energy futures are all higher again this morning with WTI crude up close to 30 cents, Brent crude has increased 35 cents, gasoline has gained nearly 2 cents and heating oil up another 2 cents.
Another Wednesday, another market-moving EIA inventory report. The data showed sharper-than-expected declines in both WTI and gasoline inventories and a surprise drop in heating oil stockpiles. Higher imports, lower exports and reduced refinery runs did not flip crude stocks into a build, as indicated by API, but they did temper the magnitude of the draw.
Expectations are that energy markets will be placid for the remainder of this week, with traders waiting for next Monday’s meeting of OPEC and Russian Energy ministers in St. Petersburg. Observers are wondering if participants will recommend that Libyan and Nigerian production be capped and/or that OPEC implement deeper production cuts. It’s certain that Russia won’t cut further to accommodate higher exempt country output. They see this as an OPEC problem, but remain “fully committed to the spirit of the rebalancing initiative.” Inventory draws won’t offset faltering compliance and member defections forever and jawboning prices higher no longer works, so the Saudis are under a lot of pressure to pull a rabbit out of a hat. “On Tuesday, Bloomberg reported that Saudi Arabia might actually be considering deeper cuts, perhaps as much as 1 million bpd. That would equate to more than half of the full 1.8 million bpd of OPEC/non-OPEC reductions.” The market remains skeptical, given how hard the Saudis have worked to maintain market share in Asia. It’s thought that without the sharing of burdens, “at some point, Saudi Arabia, which has already shouldered the lion’s share of cuts, will grow exasperated with [self-interest and] non-compliance and return to full production.”