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Oil prices respond to hopes of OPEC/non-OPEC co-operation

Published Wednesday, January 27th, 2016

Re-balancing may be moving closer. As panic sets in amongst crude oil producers the voices are getting louder by the day. The voices are a cry for help and the latest one is Venezuela where the country’s oil minister is going on a mission to convince OPEC and non-OPEC producers to co-operate to “stop this madness”. Low oil prices are hurting and not only OPEC producers. The latest oil company to cut capital spending is Hess. Its 2016 spend is set to fall from $4 billion in 2015 to $2.4 billion this year. The reduction is even bigger at Continental Resources (-66%) and Noble Energy said it would cut spending by 50%.

Concerns that re-balancing may be moving closer helped the oil futures market recover somewhat from Monday’s sell off yesterday. WTI gained $1.11/bbl on the day and Brent $1.30/bbl. Heating Oil finished 324 points higher and RBOB 172 points up. Re-balancing and the consequent inventory draw are inevitable at some point but they are not just around the corner if the latest statistics from the API is anything to go by.

US oil inventory data from the API is considered less important than that of the EIA but this week’s figures are definitely worth mentioning. Reuters consensus forecast was for a gasoline stock build of 1.5 million bbls, the API reports a jump of 4.08 million bbls. Distillate stocks fell by 630,000 bbls against expectations of a 1.9 million bbl draw. Crude oil stocks have reportedly grown by an amazing 11.37 million bbls – though Cushing drew 664,000 bbls – versus a forecast of a build of 3.3 million bbls. If these figures are even remotely confirmed by the EIA total commercial stocks will have reached yet another all-time high last week, reminding us of the enormity of any move to rebalance.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.