Crude oil prices must find new balance as global oil stock piles are falling against surging global demand and an increasing amount of geopolitical risk. Russia and Venezuela are the hot issues, with Iran and North Korea lurking in the background.
OPEC and non-OPEC leaders are wrapping up their meeting in St. Petersburg Russia and it looks like it has yielded some positive results. Not only did Nigeria agree to cap their oil production output at 1.8 million barrels a day, the Saudi Oil Minister Khalid al Falih, speaking after the meeting broke up, seemed optimistic that the path they were on would eventually get global supply back in balance.
For oil and the markets, Russia is all the rage. There is the big OPEC/non-OPEC pow-wow in Russia and reports that Special Prosecutor Robert Mueller is opening an investigation into President Donald Trump's business transactions with Russia one day after the President said that that would be a red-line for him.
Crude oil prices sold off almost 5% on what many people attributed to a story that some unnamed Russian oil company source said that Russia was against a production cut. Today those sources are still unknown, but really the sell-off in oil probably had more to do with the fact that Saudi Arabia cut prices to Asia as the kingdom was losing market share to Iraq and Iran that has been raising output and taking away business from the Saudis.
Crude oil prices are under pressure after an unconfirmed report was released that Russia would oppose and additional output cut and instead would stay the course on current cuts. Yet, an unsourced story from Bloomberg was enough to break oil that had been on a streak of eight up days in a row, one of the best runs in oil in seven years.
Crude oil is struggling even after the Energy Information Administration (EIA) reported the sixth drawdown in crude oil in a row and the fact that U.S. oil production dipped for the first time in 13 weeks. The bears argue that while we have seen declines they will have to be much larger to drain off excess supply.
When will the global oil market get in balance? It already has and according to the International Energy Agency, that process is accelerating. The global oil market has achieved so-called market balance but much work remains to reduce excess global oil supply.
Crude oil prices are soaring after Saudi Ariba and Russia said they have agreed to extend oil production cuts beyond the agreed upon deadline for another nine months. That means both Russia and Saudi Arabia will extend cuts to March of 2018 at a time when we are seeing evidence that the prior cuts are just starting to have an impact. It appears that the oil cuts had a lag time to get the market in balance as U.S. shale producers increased output but also as traders dumped oil from floating storage and releases of oil from the U.S. Strategic Petroleum Reserve.