Seven months after pulling off a historic OPEC/non-OPEC deal to steer the oil market back into equilibrium by reining in 1.74 million b/d of supply, leaders of the two blocs seem to have either buried their heads in sand or lost the will to continue fighting. After a few weeks of deafening silence even as crude prices plunged to fresh seven-month lows, OPEC was said to be contemplating handing out production caps to Libya and Nigeria, members exempt from the current supply restraint agreement, as this week came to a close. The two countries cannot be expected to accept caps below their latest peak output levels, which would render the measure futile, unless it is meant to be a precursor to deeper cuts by the rest of OPEC/non-OPEC producers across the board.
Some in the market believe that crude has been oversold, but the fact remains that it failed to rebound even in the face of significant draws in commercial crude and gasoline inventories in the US reported by the Energy Information Administration this week.
Crude stocks drew by 6.3 million barrels and gasoline by 3.7 million barrels in the week to June 30, the EIA said Thursday, but crude futures closed the week nearly 6% lower than Monday.
A recovery in weekly gasoline demand figures did not provide support either. Though US gasoline consumption rose by 167,000 b/d to 9.705 million b/d in the week to June 30, on a four-week moving average basis, it remained 275,000 b/d or 2.8% below the same period a year ago, a trend bound to continue weighing on market sentiment through the summer driving demand season.
US rigs and crude production data, which had forced the market bears to pause briefly after the EIA reported a 100,000 b/d weekon week output drop to June 23 and Baker Hughes reported the first weekly decline in the country’s oil rig count since January in the week to June 30, has also reversed course.
Crude output climbed by 67,000 b/d in the week to June 30, and oil rig count rose by seven to 763 in the week to July 7, snapping back to the enduring narrative of an oversupplied market.
It took a lot for us to turn bearish. We were not convinced when crude first hit the skids in March: we said it was premature and a panicky sell-off by nervous longs. Speculative length in NYMEX WTI and ICE Brent futures had reached a record high of 919 million barrels as of February 21.
It was too soon for crude to surrender its premium because the OPEC/non-OPEC cuts were only two months into their implementation and looked set for a strong compliance record, we said. US production had been inching up but was not ready to be characterised as a resurgence, and OECD oil stocks data needed to be given more time to be conclusive on whether they were draining in response to the output cuts.
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
Note: All prices except West Texas Intermediate (Cushing) are spot prices.
Source: U.S. Energy Information Administration
Principal contributor: Jesse Barnett
Thankfully, it has not.