You can say what you want about the state of the oil market, but you cannot deny that crude supply in the U.S. is on a clear downtrend. The Energy Information Administration reported that U.S. crude supply and commercial crude oil inventories fell by 4.4 million barrels from the previous week. And they would have fallen by an additional 2.1 million barrels because that was the amount that was removed from the Strategic Petroleum Reserve this week.
This decline marks 7 out of eight weeks where supply have fallen by 40.5 million barrels. Simultaneously, overall supplies are at 496.0 million barrels and 14% above the five year average for this time of year. Still, that cushion over the standard will evaporate in a couple of months as refiners ramp up to meet peak yearly demand.
The report added to the bullish momentum generated ahead of the information with reports of OPEC compliance over 101% and reports that the OPEC plus group was open to extending cuts beyond this year. OPEC plus is having a joint meeting now and announced another for October 15. The biggest concern is cheating at this meeting.
Reuters News reported that, “Several of the secondary sources showed the UAE missed its target in August, with the International Energy Agency (IEA) giving OPEC’s third-largest producer a score of only 10%, significantly lower than an average of around 80% from other sources.
The UAE said its overproduction was due to higher demand for associated gas for power generation for air conditioning. The UAE said they would compensate for the August rise by reducing its oil supply in the coming months. Still, the top cheaters in OPEC PLUS are Russia, Nigeria, and Iraq. Shame!
Oil was partly rising because of production shut-ins from Hurricane Sally and the covering by hedge funds that seemed too short. Yet what was most heartening on the EIA report was what appeared to be demand resilience in the aftermath of Hurricane Laura. We saw gasoline and refining demand bounce back, and while distillate demand is still struggling, there is a sense that demand will get better. That expectation should be further enhanced by the fact that the Federal Reserve yesterday seemed to guarantee low-interest rates near-zero forever. Ok, maybe just until 2023, but in the rate world, that can seem like forever.
Now you would think the stock market would have loved that but still gave up their gains because the Fed said the economic outlook remained uncertain. A lot will depend, of course, on if and when we get a COVID-19 vaccine and maybe a coronavirus relief package bill. It’s funny that scientists seem to be making more progress in creating a vaccine for covid than the members of congress have had on getting a relief bill done.
The EIA reported that refineries operated at 75.8% of their operable capacity last week. Total motor gasoline inventories decreased by 0.4 million barrels last week and are only 3% above the five-year average. Still, distillate fuel inventories increased by 3.5 million, adding to the glut as supply is 22% above the five year average for this time of year.