OPEC Producers Look to Extend Oil Output Cuts
January 29th, 2020
The API put out their weekly inventory update and it showed that crude oil stocks were down 4.3 million barrels and the crude stocks at Cushing, Ok were up 1.0 million barrels. Gasoline stocks were up 3.3 million barrels and distillates were down 141,000 barrels. The estimates from the Reuters survey for today’s DOE inventory update are looking on average for crude stocks to be up 482,000 barrels, gasoline up 1.3 million barrels and distillates down 1.0 million barrels.
The market bounced yesterday and did enough to give the bulls hope but now they need good solid strong follow-through higher to suggest an uptrend is under way for a seasonal rally. Yesterday at this point is a one-day bounce of an oversold market. This morning the market is still trying to test higher in early trading.
UBS stated that while oil demand growth may have slowed recently, it is too early to ascertain the full-year impact of the coronavirus. It retained its positive outlook for oil prices in the second half of the year, with Brent crude oil recovering to $64 per barrel.
Barclays Commodities Research stated that if the SARS outbreak in 2003 is any indication, the market has likely overreacted to the coronavirus. It said compounding effects of the spillover to economic growth from China and the region, expect transitory oil demand erosion of about 600,000 to 800,000 bpd in the first quarter of 2020 or 200,000 bpd for the full year. It sees $2 per barrel downside to their full-year Brent crude oil and WTI crude oil forecast of $62 per barrel and $57 per barrel based on any impact to economic growth from the coronavirus. It said it demand erosion is more acute, expect OPEC+ producers to take further steps to keep the market tight.
OPEC sources stated that the producers group wants to extend current oil output cuts until at least June, with the possibility of deeper reductions on the table if oil demand in China is significantly impacted by the spread of a new coronavirus. Saudi Arabia, joined by UAE, Algeria and Oman sought to calm down market concerns on Monday, urging caution against gloomy expectations on the impact of the virus on the global economy and oil demand. However, OPEC officials have also started weighing their options and intensified internal discussions on how best to respond to the price decline. A source familiar with Russian thinking, said that although Russia had been keen earlier to exit from cuts, it would stay on board if oil prices continued to trade below $60 per barrel.
Propane supplies are estimated to be down by 1.3 million barrels in today’s inventory report release. The five-year average for this reporting week is a decline of 3.5 million barrels. Mild weather has certainly been a factor with regard to propane demand and the weather outlook for the next few weeks continues to look above normal.
The Federal Open Market Committee (FOMC) will announced its rate decision later today and the market expectations is that there will be not change to benchmark rates.