Crude oil is leading the rest of the commodity complex out of the abyss as Energy Information Administration (EIA) data seemed to fly in the face of the bearish oil narrative. Even as U.S. oil production increased yet again and more oil was released from the Strategic Petroleum Reserve, old supplies fell. We also saw a big weekly jump in gasoline demand that may suggest the resistance to higher prices by consumers and may have been overstated. What also may be overstated are fears about a slowdown in demand in India and China, which has increased the bearish oil sentiment. Now if crude can comeback after the beating it took last week then other commodities more than likely follow suit.
The EIA crude report showed a big 5,247-million-barrel drop. Supply in Cushing Oklahoma fell but 438,000 barrels as well. A big drop in Gulf Coast supply was partly due to weather, but because supply fell for the fifth week in a row, it looks like the OPEC cuts are starting to have an impact on U.S. supply. The crude drop came even as refinery runs surprisingly fell to 91.5% of capacity but was offset by an increase in U.S. oil exports. U.S. Oil exports are going to play a bigger factor in supply going forward. Crude production increased by 21,000 barrels, most of the increase was in Alaska. The SPR added 551,000 barrels of oil that was unnoticed because of the overall drop in supply. Without the SPR oil the drop would have been close to 6 million barrels. Regardless it was the biggest crude draw of the year.
Gasoline demand surged back to 9.408 million barrels a day, up a whopping 252,000 barrels from a week ago. That helped gas stocks fall by 140,000 barrels. Distillate stocks fell by 1.587 million barrels. That puts total commercial petroleum stocks now 2.5 million below year ago levels.
OPEC is also showing signs that they will extend cuts, if not add to them. They do not seem to fear the shale competition because they feel that they can compete even with less oil output. Shale production will rise but not as fast as global demand. OPEC ain’t afraid of no shale.
Bloomberg News reports that OPEC and other oil producers taking part in output cuts have reached a consensus to extend the limits until the end of the year, oil ministers for two of the group’s members said. All members of OPEC support an extension of the cuts for a second six-month period, as do non-member nations that joined last year’s accord to curtail a global oversupply of crude, Iraq’s Jabbar Al-Luaibi and Algeria’s Noureddine Boutarfa said Thursday in a joint news conference in Baghdad. “The decision to decrease output will be for six months, and Algeria and Iraq maintain a united stand for the next cuts,” Boutarfa said.