OPEC+ Announces Surprise Production Cuts
January 6, 2021
The big surprise from yesterday was the news that OPEC+ would cut oil put by 1.0 million barrels per day in February and March. This cut is all basically being done by Saudi Arabia as Russia and Kazakhstan are allowed to increase oil production by a combined 75,000 bpd. This news sent the energy markets much higher. The market will have to see how these cuts materialize as we move forward.
The API had crude stock down 1.7 million barrels and the crude stocks at Cushing, Ok were up 1 million barrels. The estimate for today’s DOE inventory report from the Reuters survey is for stock to be down 1.3 million barrels. Gasoline stocks were called up by 5.5 million barrels in the API report and the estimates for today are for them to be up 596,000 barrels. Distillates were up a big 7.1 million barrels in the API report and the estimates for today are for them to be up 2.4 million barrels.
The United States TSA reported traveler throughput at US airports was down 45% on the year during the first weekend of 2021, despite reaching a nine month high.
An analyst at Tudor Pickering Holt in a research note on Monday noted that in 49 US cities rush hour congestion rose to 28% in December 2020 from 26% recorded in November, reflecting increased levels of personal mobility. The current levels though are still some 50% below last year’s levels.
Germany’s Chancellor, Angela Merkel, said the country is extending its nationwide lockdown until the end of the month and introduced tougher new restriction in an effort to control the increasing coronavirus infections. Shops and restaurants will remain shut until the end of January. Schools will also remain close until at least the end of the month.
Public health experts advising Japanese Prime Minister, Yoshihide Suga, called for the swift imposition of a state of emergency in the Tokyo area as daily COVID-19 cases reached a record high.
These lockdowns and the impact to energy demand are the big concern for OPEC+ and why they likely decided to hold back production. The fund managers have been adding to their oil positions because they are expecting the vaccination programs to restore oil consumption over the course of this year. Near term the resurgence of the virus, the slow roll out of the vaccines, and a slow business cycle have downside risks.
Estimates for the propane inventory report today is for stocks to be down 3.47 million barrels another bid decline being driven in a large part by exports. This will support price which have seen a steady run to the side.