Let’s take a look at what prices are doing as of 12:30 p.m. EST. Heating oil was weaker this morning, down almost $0.0200 cents, but it has since strengthened, currently up $0.0150. Gasoline experienced the same build up, down early this morning, but currently holding strong, up $0.0175. Crude is creeping around the $50 resistance level that has been much discussed over the past several weeks. It is slightly up $0.18 and sits at $48.00 a barrel. The high today was at $48.28 and the low was a good bit under that, at $47.04.
The long awaited informal OPEC meeting finally occurred yesterday and made quite a splash in the market. Initial reports indicate a cut of somewhere in the range of 240,000 to 740,000 barrels per day across the board. This would take production down to roughly 32.5 million bpd from the current 33.4 million bpd level. According to a senior OPEC source, the Saudis would be among the hardest hit, with an estimated production cut of roughly 350,000 barrels per day. This would be the first major production cut since 2008 and frankly it was only a matter of time, considering how much over production has flooded the market and driven the cost per barrel down time and time again. In addition to the cuts, OPEC plans to appoint a task group to determine each member’s share, which will be presented at a November 30 OPEC meeting. This is a step that seems more thoroughly thought out than promises of the past.
Today we received neutral information out of the EIA oil inventory report which made the market sell off initially, but reverse at around noon EST to the prior rally. Crude is up $1 and products 3.5 cpg, at writing. Crude stocks drew 1.9mmbs, compared to the API expectation draw of 0.75mmbs. 3.3mmbs of the crude draw was in PADD 1 (East Coast) and 0.65mmbs in PADD 3 (Gulf Coast); the primary reason for this was the drop in imports last week. Gasoline stocks rose 2.0mmbs, in stark comparison to the 3.7mmbs draw expectation. Distillate stocks drew 1.9mmbs, compared to the 0.3mmbs draw. Refinery runs fell 1.9% and production decreased 15 kbpd.
Saudi Arabia and Iran don’t agree on much, but they do share one common goal, “protect market share.” Headlines today are focusing on Iran and Saudi Arabia, in regards to whether they will cap production or not. So far, each nation appears to be staying consistent with their message.
Now that the Federal Reserve meeting from last week and its subsequent decision to postpone an interest rate increase are in the rear view mirror, OPEC’s September 26-28 informal meeting at the International Energy Forum in Algeria is in the on-deck circle. As oil is currently rallying this morning, after dropping over 3% on Friday, there are still mixed signals and skepticism as to whether a production cut or freeze will materialize. “Given that OPEC has failed to agree on much of anything in the last 12 months, it seems unlikely that it will start now,” said an analyst for CMC Markets UK, as reported by the BBC.