We have one more day to go before the OPEC/non-OPEC meeting tomorrow in Vienna, Austria. Initial reports and whispers still have not reached a consensus regarding if there will be an agreement by non-OPEC producers to cut 600,00bpd. OPEC’s secretary general says this non-OPEC cut is an absolute requirement in order for OPEC to cut its production. Russia is rumored at cutting 300,000bpd, so another 300,000 needs to be divided up between the 8 other nations invited to the meeting. Crude oil is currently trading up $0.56 at $51.40/bbl. RBOB trades at $1.5074 and ULSD trades at $1.6306, both modestly up on the day.
The oil market closed down across the board yesterday as all three major indexes reflected a bearish report from the Energy Information Administration, as well as increasing doubt over the impact of the OPEC/Russian production cuts. While crude inventories fell 2.4 million barrels, gasoline and distillate stocks increased by 3.4 million barrels and 2.5 million barrels respectively, which were greater builds than what was expected. Crude finished the session at $49.77, down $1.16 with RBOB closing down $0.0277 and diesel off $0.0195.
Yesterday, WTI crude closed down $0.86 to $50.93/bbl, HO closed down $0.0192 to $1.6379/gal, and RBOB finished down $0.0216 to $1.5359/gal. The market was correcting itself from last week after the reports that OPEC’s November production was at a record high. Last week the market rallied because of all the rhetoric around OPEC’s production cuts, but it now seems very unlikely that OPEC will follow through on those cuts. Another piece to rebalancing the market has to come from non-OPEC countries. There is a meeting in Vienna this Saturday to discuss if non-OPEC countries will agree to cut 600,000 barrels per day.
The OPEC meeting has come and gone and the market has been up for a week straight, until today. With November now over, OPEC reported that production increased to 34.19 million barrels per day last month, which is close to 2 million barrels over the agreed-upon level set to begin in January. Don’t forget that OPEC posted big numbers for production in October as well, at 33.82 million barrels per day. OPEC was not the only group that increased production in November; Russia did as well. Russia is busy setting records and hit a new 30-year high at 11.21 million barrels per day. Russia’s output of 11.21 million bpd combined with OPEC’s 34.19 million bpd were enough to cover nearly half of the global oil demand of 95 million bpd.
What an incredible, roller-coaster of a week we’ve been on due to OPEC’s historic decision to cut production on Wednesday. Many market participants were skeptical of a deal being done, as evidenced by the rally we’ve been on for the past three days.
The wait is over for the OPEC decision. Now the wait begins for actual OPEC action. Yesterday in Vienna, the oil ministers of OPEC came to an agreement, its first in eight years, to cut oil production by 1.2 million barrels per day. This will bring total output down to approximately 32.5 million barrels per day. In addition, non-OPEC producers including Russia are expected to contribute an additional 600,000 barrels per day to the total reduction. As a result of the OPEC deal, prices across the board closed significantly higher. Crude settled up $4.21 to $49.44 per barrel while refined products RBOB and heating oil finished at $1.4825 per barrel and $1.5763 per barrel respectively adding ~ $.1000 each from the previous settle.
Early reports from Bloomberg and Reuters have come in as the OPEC formal talks have ended. What is currently being reported is that OPEC will decrease production by nearly 1.2 million barrels per day, which will result in a total output of roughly 32.5 million barrels per day. Reuters states that this agreement will “mop up most of the excess supply that has weighed on the market.” To go hand in hand with that report, it is also being reported that non-OPEC counties will be cutting production by nearly 600,000 barrels per day. This would be the first time since 2008 that this type of cut has been made by OPEC.
Doubts surrounding the OPEC meeting tomorrow seem to be the main driver of today’s market. We are currently experiencing a strong fall off on all products: distillates are off over 5 cents, while RBOB is right around the same (11:20 a.m. EST). WTI is also selling off, getting closer to $35 per barrel once again.
Trading will be thin today as the oil markets will be closing at 1:30 EST. However, this didn’t prevent the bears from showing up after the Thanksgiving holiday.
Yesterday, WTI crude closed down $0.21 to $48.03/bbl, HO closed up $0.0018 to $1.5263/gal, and RBOB finished up $0.0133 to $1.4098/gal. As of 9:15 a.m. ET this morning, the market is off across the board; WTI crude is down $0.055/bbl, HO is down $0.0050/gal and RBOB is down $0.0085/gal. However, refined products reversed at 9:40 a.m. and are both trading up between $0.0050 and $0.01. The market is very volatile surrounding all the contradictory news out there around oil production.