EIA crude oil inventories increased more than expected
Data released by the U.S. EIA show that the U.S. commercial crude oil inventory excluding strategic reserves increased more than expected in the week ending November 22. In addition, refined oil inventories exceeded expectations, and gasoline inventories exceeded expectations by a large margin. The impact of the EIA data is relatively limited as API inventories have already shown a significant increase in inventories. After the EIA data was released, U.S. oil prices fell slightly in the short term.
The U.S. EIA crude oil inventory actually increased by 1.572 million barrels, which was expected to decrease by 78,800 barrels. The previous value increased by 1.379 million barrels, recording growth for 5 consecutive weeks. U.S. domestic crude oil production increased by 100,000 barrels last week to 12.9 million barrels per day, a record high.
Oil prices fell during the day after API crude oil inventories recorded a higher-than-expected increase, while more trade-related optimism led to oil prices rising, but subsequently fell back to the levels released by API data. The overall crude oil inventory level in the United States is at its highest level since July this year. Although the number of U.S. oil drilling rigs has declined, domestic crude oil production in the United States continues to increase to a record high.
It is expected that the voice of the OPEC+ meeting next week will be greater than the actual action, and tighter production reduction actions will be implemented after the production reduction agreement expires in March next year.
OPEC faces tremendous pressure and is wary of growth in shale oil production
OPEC and other producers such as Russia Oil countries will make a final decision on future output policies on December 6, and are expected to extend the production reduction agreement until June 2020. Birol, director of the International Energy Agency (IEA), said on Tuesday that OPEC oil-producing countries should make the right decision for the global economy, which is still “very fragile.”
Crude oil supplies are expected to be ample, a result of slowing demand as economic growth slows. Turning to the United States, Birol said he expected U.S. shale production growth to slow from previous “explosive” levels. Some U.S. shale oil producers are facing financial difficulties, but not because shale oil resources are depleting. New oil production growth in the next few years will come primarily from the United States.
Although we won’t see explosive growth in U.S. shale oil production, growth is still expected to come from the U.S., not just from shale but also from the Gulf of Mexico. The United States will be the dominant country in terms of where crude oil production growth will come from over the next five years. For now, waiting for U.S. shale oil to turn around is a “challenging position” for OPEC+, which leaves them with few other options in the short term.
Will OPEC+ increase production cuts? Russia’s attitude becomes key
The OPEC Joint Technical Committee (JTC) will hold a meeting in Vienna on the afternoon of December 3. OPEC’s plenary meeting is scheduled to be held in Vienna on December 5, while non-OPEC members of the Russia-led production reduction agreement will join negotiations the next day to decide how to advance the agreement.
OPEC oil-producing countries have unanimously supported the feasibility of extending the production reduction agreement after it expires in March 2020, and are currently discussing options for extending it by three to six months. The extension of the agreement after March is currently confirmed, but most likely, production cuts will not be increased. Another source said there will be a new meeting after June 2020 to decide the next steps.
OPEC+ is likely to maintain the status quo, postpone the extension of the agreement, and hold a meeting before it expires in March. But that would unsettle the market. Unless they come up with something pretty strong and stick with it, it’s more likely that there will be some downside risks to the oil market.
Wenyu Yao, head of commodity strategy and senior commodity strategist at ING, said that the strength in oil prices in recent days reflects that OPEC+ will agree to further cut production at next week’s meeting and will The production cut agreement was extended until mid-2020. Strategists at ING noted that this expectation is also a key downside risk if OPEC+ fails to act.
On the eve of Thanksgiving, oil prices fluctuated within a narrow range
Oil prices have remained stable recently The market fluctuates within a narrow range. On the one hand, external trading is relatively light on the eve of Thanksgiving. On the other hand, the market is still waiting for the results of Sino-US trade negotiations and the OPEC production meeting. Judging from the signals released by OPEC, there is a high probability that this production reduction meeting will further extend the production reduction. time.
However, the extent of production cuts may remain unchanged, and the intensity of production cuts will not be increased. At the same time, the implementation compliance rate of production cuts may be strengthened. This is the baseline expectation of the meeting, so if OPEC further cuts production, it will have an impact on oil prices. It is bullish. If the production cuts are not extended or the quota limit is raised, it will bring downward risks to oil prices.
However, OPEC is unlikely to make much action at this meeting. It should be noted that although OPEC limits production, the contradiction between supply and demand will not be too prominent next year. However, during the spring inspection of refineries in the first quarter of next year, there will still be seasonal accumulation of inventory, and the operating rhythm of oil prices will depend on seasonal fluctuations in supply and demand.
It should be noted that due to the U.S. Thanksgiving holiday, trading of CME’s foreign exchange, metal and energy contracts will be closed at 2:00 am on November 29, Beijing time. At the same time, ICE’s Brent The crude oil contract will be closed early at 02:30 am on November 29th, Beijing time.
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