prior week draw -7564K
- Crude oil -4727K vs -3500K est
- Gas -4445K vs -1300K est
- Cushing -23K. No estimate.
- Distillates -2137K vs 1200K estimate.
In a desperate bid to survive its economic meltdown, Venezuela is lobbying other OPEC members to agree to steeper oil production cuts, a move that would likely lead to higher oil prices.
Venezuelan officials have reached out to their counterparts in Iran, Russia and Saudi Arabia to press them on more collective action, according to Argus Media. If there was enough interest, the next step would be an “extraordinary meeting,” which would weigh the option of cutting deeper.
But the behind-the-scenes effort from Venezuelan officials is notable, if only because the South American OPEC members was one of the earliest and most aggressive supporters of the original deal to reduce output. In 2016, for months the more powerful members of the cartel rebuffed Venezuelan pleas, but in the end they agreed to reductions in November after oil prices continued to wallow below $50 per barrel.
The deal pushed prices above $50 for a period of time, but after six months of restraint, the market is back in sub-$50 territory.
However, the urgency for higher prices is more acute now for Venezuela. Protests have spread nationwide in the South American nation as the economy contracts at a torrid rate. Violence is becoming more widespread, and the nation is suffering from political gridlock and economic and social disaster.
Over the weekend, the opposition organized an informal referendum, which attracted more than 7 million votes, to oppose anti-democratic moves by the government. The vote demonstrated widespread anger and opposition towards the government’s upcoming effort to consolidate power in a July 30 vote to rewrite the constitution, a move that would weaken competing institutions like the National Assembly. The referendum opposing the July 30 vote was not recognized by the government, but it was a show of force for the opposition.
There is no way out of the downward economic spiral for Venezuela in the short run without significantly higher oil prices.
WTI has roller-coastered higher since last week’s ‘bullish’ API report and rose today for the 6th of the last 7 days (on Saudi cut hype). While many eyes are on record high shale production, the recent trend in inventory draws remains key but API upset that dream briefly as Crude saw an unexpected build (+1.628mm vs -3.5mm exp). Gasoline and Distillates saw major draws (much bigger than expected) and Cushing saw its first build in 8 weeks.
As Expected on Fire…………..Now ,What ?
IEA highlighting the fragile conditions still prevailing and less confident on oil market rebalancing.
WTI $45.03 near session lows as is Brent at $47.45 on the bearish price news. USDCAD unfazed and trawling along around 1.2750
More from the IEA here
In the other data:
WTI prices have roller-coastered (generally lower) since last week’s inventory(lower)/production(higher) data back to unchanged but as API printed a massive 8.133mm crude drawdown (vs 2.45mm exp), the biggest since Sept 2016 if DOE confirms, WTI prices quickly jumped higher. Gasoline also saw a bigger than expected draw while Distillates built.
A lot of hope today as EIA cut its 2018 crude production forecast (modestly) – “This pull-back in production is kind of wake-up call to people who thought that shale was going to be viable no matter what OPEC did,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, says by phone, adding “If output doesn’t rise as much as previously anticipated, “then it’s time for the bears to start questioning their religion again.”
Notice that WTI was trading at the same level as it was when last week’s API data hit before the print…once the data hit, WTI was bid above $45.50…Deja vu all over again
However, what Flynn and the algos probably missed was EIA’s cut on demand expectations and price outlooks.
For three consecutive days crude has traded below $44 per barrel but it’s rebounded in each day and now it’s trading at a session high, up $68-cents to $45.09.
The gains come as Reuters reports that OPEC compliance with cuts was at 97%. However, Libya and Nigeria, which are exempt, led to a rise in total production to 32.47 mbpd from 32.14 mbpd.
The official numbers are due Wednesday.
Says Dr Fatih Birol, the IEA’s Executive Director:
“As the oil and gas industry refocuses on shorter-cycle projects, the need for policymakers to keep an eye on the long-term adequacy of supply is more important. Even with ambitious climate-mitigation goals, current investment activity in oil and gas will have to rise from its current slump.”
“The good news is that in spite of low energy prices, energy efficiency spending is rising thanks to strong government policies in key markets.”
Full report here