Recap: Trading in oil futures was choppy on Wednesday, as traders continue to grapple with increasing U.S. production amid supply overhangs and OPEC’s adherence to the agreed upon output cuts. WTI tumbled 68 cents upon the immediate release of the EIA report, which reflected a drop of 930,000 barrels of crude oil, much less than the forecasted draw of 2.3 million barrels. Prompting the sell-off, was the year-on-year 2.7% slip in gasoline demand. What makes this number significant is that demand for gasoline has been falling since the onset of 2017, and with the U.S. summer driving season on the horizon, traders are focusing on this key factor.
June WTI continued to seesaw around the unchanged ($47.66) level for the remainder of the session, eking out a gain of 16 cents, or 0.34%, to settle at $47.82 a barrel. Brent for July delivery tacked on 33 cents, or 0.65%, settling at $50.79 a barrel.
June RBOB rose by 1.3% to $1.534 a gallon, while June heating added 0.4% to $1.474 a gallon.
Fundamental News: According to a Russian government official, the country considers it sensible to extend the existing deal with OPEC to cut crude production for at least six months. Russia exceeded its target of cutting production by 300,000 bpd from October levels by 790 bpd on May 1st. Russia’s oil production in April fell 0.5% on the month to 10.995 million bpd. Russia will maintain that output level through June under the current deal. The official said Russia is satisfied with the way global inventories are declining.
Bloomberg reported that OPEC strengthened its compliance with production cuts in April. Production fell by 40,000 bpd on the month to 31.895 million bpd. Total output, including Libya and Nigeria, remained 135,000 bpd above its target, putting the group at about 90% in compliance with its agreement. It reported that Iraq produced 4.41 million bpd, down 20,000 bpd. Venezuela saw a 20,000 bpd decline in output to 1.98 million bpd while Saudi Arabia’s production was steady at 9.95 million bpd. Libya’s oil output fell by 70,000 bpd in April, while Nigeria increased its output by 50,000 bpd on the month.
Colonial Pipeline is allocating Cycle 27 shipments on Line 2, its main distillate line from Houston, Texas to Greensboro, North Carolina.
Saudi Arabia’s Deputy Crown Prince, Mohammed bin Salman, said Saudi Arabia will retain full ownership of its oil and gas reserves and sole decision-making authority on production levels after Saudi Aramco’s initial public offering.
Standard Chartered stated that US total oil production, including crude, NGLs and ethanol, will reach a record high this month. Total output will average 14.18 million bpd in May.
GMP FirstEnergy has cut its forecasts for WTI and Brent. WTI is forecast at $56.50/barrel in 2017, down from a previous forecast of $58/barrel while Brent is forecast to average $59.03/barrel this year, down from $60.50/barrel.
IIR reported that US oil refiners are expected to shut in 490,000 bpd of capacity in the week ending May 5th, increasing available refining capacity by 239,000 bpd from the previous week. IIR expects offline capacity to fall to 471,000 bpd in the week ending May 12th.
The Federal Reserve held short-term interest rates steady and offered little indication that recent softness in economic data would change its plans to proceed with gradual interest rate increases this year. Following a two-day policy meeting, officials unanimously held their benchmark rate steady in a range between 0.75% and 1%, while noting that slow growth earlier this year was likely to be transitory.
Early Market Call - as of 9:00 AM EDT
WTI - June $46.98, down 85 cents
RBOB - June $1.5074, down 2.62 cents
HO - June $1.4525, down 2.10 cents
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