Inventory levels for crude oil decreased by 0.9 MMBbl last week as reported by the EIA. The gasoline and distillate inventories increased 2.1 MMBbl and 5.0 MMBbl respectively. The crude oil withdrawal was bullish as it ran contrary to analyst expectations of a slight build. The large builds in gasoline and distillate inventories was bearish, however, especially as refinery utilization remained a modest 89.8%. The most important number to keep an eye on, total petroleum inventories, increased by 0.5 MMBbl. Overall, the report had bullish and bearish indicators leading to little change in the total petroleum inventories number. The market brushed off the uneventful report on Wednesday and chose to focus on the OPEC agreement.
OPEC has agreed to a production cut that will reduce output by 1.2 MMBbl/d. The following table summarizes how they intend to reach the 1.2 MMBbl/d cuts (volumes are in MBbl/d):
Saudi Arabia will bear the brunt of the cuts. Iraq has agreed to cut although they had previously expressed that they want to remain exempt due to the need for the revenue to fight ISIS. Iran has been allowed to grow production an additional 90 MBbl/d. Nigeria and Libya have been exempted from the cuts. Indonesia’s OPEC membership has been suspended because they declined to participate in the cut. Non-OPEC producer Russia has also agreed to participate by cutting 300 MBbl/d, although their cut will be contingent on technical ability. Russia may not be able to bring back some of that production in the future if they stop production in some of their older fields.
The jury is still out as to whether OPEC will be able to avoid cheating by its members on the quotas. If the cut is successfully implemented, the oversupply will ...
