Outlook: The energy market is starting the morning off strong with crude and products all pushing higher. The market is likely influenced by 1 headline alone today and that is the additional cuts announced by OPEC member Saudi Arabia. Saudi Arabia has announced a voluntary cut of 1 million bpd for July which will bring total cuts to 3.66 mbpd. The market throughout last week expected the group to maintain their current cut, but late in the session on Friday rumors started to swirl about considerations for an additional cut. A slightly bearish development also came from the OPEC+ meeting with the group deciding to redistribute production quotas in 2024. Production will be shifted from those struggling to produce targets to those with ample spare capacity, which has been a bottleneck for the group. The energy complex still has work to do before we can be convinced of a trend change despite this weekend’s developments.
Crude
- Saudi Arabia has pledged to deliver an additional 1 mbpd production cut in July.
- The voluntary production cut from the other 9 OPEC+ members is now extended through 2024 rather than just 2023.
- OPEC output baselines will be redistributed in 2024 from countries struggling to reach their targets to those with ample spare capacity.
- OPEC is currently cutting 3.66 mbpd of oil production which is around 3.6% of global demand.
- IEA Chief Birol says the possibility of prices going up has become a lot more likely after OPEC’s production decision over the weekend.
- Russia’s oil exports from its western ports hit a 4-year high in May at 2.4 mbpd.
- Baker Hughes reported US rig counts fell by 15 last week, marking the 5th week in a row of declines.
- As of 8:36 am CST: Brent crude oil up $1.67 to $77.80, US dollar index up $0.290 to 104.305 while the nearby e-mini S&P 500 futures contract is up 9.25 to 4297.00.
Diesel
- Last week’s COT reports showed ULSD managed money traders are net long 7,897 contracts after net buying 2,343 contracts.
- Diesel exports from Russia were down 21% in May due to refinery turnaround and higher domestic demand.
Gasoline
- Last week’s COT report showed RBOB managed money traders were net long 56,507 contracts after adding 653 net long contracts.
- Pump prices fell last week and low prices may act to keep demand stimulated.
Propane
- Conway is trading at .6000 while Belvieu is trading at .6075.
- Conway is trading at 34% of crude.
- The US is exporting 53% of production as of 5/19/23.
Natural Gas
- Overnight weather runs added 4 CDDs through the two-week forecast.
- Yesterday, US natural gas demand rose to 94.4 Bcf/d.
- Baker Hughes reported natural gas rigs remained flat last week at 137.
Continuous Daily WTI: Crude opened sharply higher last night following the OPEC+ news but retreated to fill the gap quickly. It will take time for the extended cuts in July to materialize but if demand continues to climb throughout the year, a supply deficit could quickly develop.
