Latest Market Commentary

February 23, 2017

The API inventory report was released yesterday afternoon a day late because Monday was President Day. The API showed that crude oil stocks were down 884,000 barrels, gasoline stocks were down 893,000 barrels and distillates were down 4.2 million barrels. The crude oil stocks in Cushing, Oklahoma were down 1.7 million barrels.

The average estimates for the DOE inventory report that will be released later today is calling for crude oil stocks to build by 3.43 million barrels, gasoline stocks to be down 1.533 million barrels and distillates stocks to be down 1.003 million barrels. The release of the inventory report will provide some new information for the market to trade off of in the near term. Over the longer term the balance of supply and demand is the main driver with OPEC cuts versus US production the two major items of emphasis.

The minutes of the last Federal Reserve meeting were release yesterday and the general take away was that Fed officials were anticipating have to raise short term interest rate in the very near futures as an improving economy and the potential for the Trump administration proposed economic policies could raise inflation up faster than they anticipated. There is some speculation that that rate increase could come as soon as the Fed’s next meeting in March. If the Fed raises rates it is generally assumed that this would be a bullish factor for the dollar and overall bearish for crude oil and gold.

The US dollar index traded to a new 4-week high yesterday after rising 0.5%.

It is being estimated that the eleven non-OPEC producers that joined the OPEC deal to cut crude oil outputs delivered at least 60% of their promised cuts so far, this from sources within OPEC. Two OPEC delegates said that compliance by Russia and the other 10 countries was estimated at 66% with another said it was at least 60%. These percentages are up from earlier estimates of around 40%. These compliance numbers were reviewed at a meeting held in Vienna yesterday that was attended by officials from Kuwait, Algeria, Saudi Arabia, Venezuela, Russia, and Oman.

OPEC’s secretary general at a conference in London stated yesterday that OPEC was committed to the production cut agreement and that they had been more than 90% compliant in January. 

The OPEC secretary general also said that oil inventories would decline further this year and that all OPEC members remain determined to achieve even higher levels of compliance to the production cut agreement deal. 

However, the OPEC secretary general also stated that it was too early to say if the supply cut would last more than the 6 months agreed to through June.  He said that would be discussed at the next OPEC meeting on May 25th.

Tim Danze, MFA Oil Company Hedging Manager