Saudi Arabia is trying to talk up the markets saying an output extension is all but done after yesterday’s supportive oil supply report failed to get us to the next level. There was a 1.0 million barrel drawdown in oil inventory overall and in Cushing, Oklahoma the inability of the market to move higher started a cavalcade of selling. At first, the movement was modest but an hour after the report, a big spike in volume started the market of its downward trek.Part of the selling was perhaps due to the May Crude contract at the NYMEX is expiring but also due to a spike in computer related sell signals. The mood seemed to get darker as the macroeconomic picture became worrisome with some disappointing earnings and a speech by Speaker Paul Ryan saying that it was unlikely that tax reform would be done by this summer.
Some point to the fact that gasoline inventory increased by 1.5 million barrels but that should have been offset somewhat by the much larger than expected 2.0 million barrel drop in distillate supply. U.S. crude production did rise by 170,000 barrels a day but that should have been expected. Refinery runs were bullish as crude oil refinery inputs averaged over 16.9 million barrels as refiners ran at 92.9% of capacity. Regardless, the mood of the market turned negative when we failed to move higher.
This morning we are seeing a bit of a rebound. After falling over 3% the market is now up over 1%. The reason is because Saudi Ariba is jawboning the market higher trying to remove any doubt that the OPEC and non-OPEC producers are on track to extend the historic production cut. Saudi minister of energy and industry Khalid A. Al-Falih said that, “though there is a high level of commitment [to cuts], we haven’t reached our goal, which is to {get supply}to reach the five-year average. There is an initial agreement that we might be obligated to extend to get to our target.”
U.S. gasoline production decreased last week, averaging 9.8 million barrels per day. Distillate fuel production increased last week, averaging just about 5.2 million barrels per day. This has week over week demand for gasoline dipped. Total products supplied over the last four-week period averaged over 19.7 million barrels per day, down by 0.8% from the same period last year as we are seeing a year over year deficit for the first time in a couple of years.
