PREVIEW: Oil Futures Rally ahead of OPEC Output Decision
OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New
York Mercantile Exchange and Brent crude on the Intercontinental Exchange were
higher in early morning trade, as an expected agreement to increase production
at today's meeting of the Organization of the Petroleum Exporting Countries
isn't likely to flood the market with oil as some traders earlier predicted.
While consensus of an increase seems increasingly certain, analysts say the
expected production boost of between 600,000 and 1.0 million bpd could be
largely offset by output declines in the second half of this year from OPEC
members Venezuela and Iran.
OPEC's 14 nations and its 10-member non-OPEC counterparts meet today and
Saturday in Vienna, and have had meetings since early this week in preparation
for the biannual event.
Saudi Arabia said Thursday actual supply cuts are closer to 2.8 million bpd
because of involuntary output declines largely the result of Venezuela, whose
oil sector is crumbling from years of mismanagement and the collapse of its
economy. Asset seizures by ConocoPhillips are hastening the decline as the
country is unable to utilize its loading facilities in the Caribbean and has
been forced to use older, less-efficient in-country ports.
The re-imposition of oil sanctions on Iran at the hand of U.S. President
Donald Trump in May could also remove as much as 1.2 million bpd from the
market later this year, Paris-based oil watchdog group International Energy
Agency recently estimated.
OPEC data shows Venezuela production in May at 1.392 million bpd, down from
output at 2.072 million bpd in October 2016, the baseline for the OPEC cuts.
Venezuela's agreed to production quota is 1.972 million bpd.
Angola is also producing below its allotted quota, while Libya output has
dropped sharply this month amid renewed fighting between rival militant groups
seeking control of the North African nation.
News reports Thursday indicated Saudi Arabia's oil minister Khalid al-Falih
said he was optimistic the group would reach a deal to increase output but that
the magnitude of the increase would "depend on consensus."
Recently, Iraq, Iran and Venezuela have been against a plan to boost
production, arguing production cuts, which reduced output by 1.8 million bpd
from October 2016 output rates, should be maintained through year end. They
also disagreed with raising production because they argued Saudi Arabia and
non-OPEC leader Russia would be the main beneficiaries of a production increase
since they have the majority of spare production capacity.
Market bulls contend the increased use of spare production capacity by Saudi
Arabia and Russia could leave the market subject to supply shocks if unforeseen
events further curtail oil production.
Supplies could also remain tight after the production increases given
Wednesday's data from the Energy Information Administration showing commercial
crude oil inventories down a much larger-than-expected 5.9 million bbl to 426.5
million bbl during the week-ended June 15, falling 10.057 million bbl over the
past two weeks and down 16.2% from the same week in 2017. U.S. oil production
is at a record 10.9 million bpd high, with output seen increasing through 2019.
Futures at 8:00 AM ET
NYMEX Contract Last Change High Low
WTI Aug. $66.53 $0.99 $66.74 $65.71
WTI Sept. $65.82 $0.96 $66.02 $64.99
ULSD July $2.1099 $0.0398 $2.1148 $2.0749
ULSD Aug. $2.1123 $0.0385 $2.1180 $2.0785
RBOB July $2.0449 $0.0303 $2.0461 $2.0133
RBOB Aug. $2.0257 $0.0304 $2.0308 $1.9968
Brent Aug. $74.46 $1.41 $74.73 $73.24
Brent Sept. $74.28 $1.48 $74.53 $72.98
SPOT PRODUCT MARKETS
Spot market gasoline and diesel fuel prices fell for a third day on Thursday
in major U.S. cash trading regions fueled by fresh weakness in RBOB and ULSD
futures headed into today's oil producers' meeting in Vienna.
Suboctane regular in Portland bucked the market retreat, riding a 400pts
basis surge to a 12.0cts MERC premium that boosted spot price by 3.38cts to
$2.1323 gallon. CARBOB in San Francisco fell 2.62cts to $2.0373 gallon, and was
rated at a 2.5cts bay discount in Los Angeles. Conventional unleaded 9.0-lb.
regular at the Gulf Coast and RBOB in in New York Harbor drifted lower in line
with the 1.12cts futures downturn, and backtracked 1.87cts in Midwest markets,
where basis discounts increased by 75pts.
Portland ULSD tumbled 450pts in basis and 8.20cts in flat price to $2.2601
gallon, rated 19.0cts over the July futures print. CARB ULSD plunged 5.70cts in
San Francisco versus a 3.0cts futures premium, and posted a 2.79cts loss in Los
Angeles indexed 250pts over the MERC.
ULSD prices in markets east of the Rockies registered losses at or near
parity with the 3.70cts pullback in July ULSD futures.
NEW YORK HARBOR GULF COAST
Heating Oil $2.0697 Heating Oil $1.9222
ULS Heating Oil $2.0772 ULS Heating Oil $2.0347
ULSD $2.1097 ULSD $2.0647
Jet, 54-grade $2.0922 Jet, 54-grade $2.0447
Conventional Regular $1.9849 Conventional Regular $1.9644
RBOB $2.0499 Conventional Premium $2.1614
PBOB $2.1899 RBOB $2.0274
CBOB Regular $1.9199 PBOB $2.1734
CBOB Premium $2.1549 CBOB Regular $1.9539
CBOB Regular 7.8 $1.9699 CBOB Premium $2.1434
CBOB Premium 7.8 $2.1974 A2 CBOB $1.8939
D2 CBOB $2.0699
Jet $2.0647 CHICAGO
Suboctane Gasoline $1.9499 ULSD $2.1197
Conventional Premium $2.1599 Jet $2.0947
CBOB Regular $1.9574
LOS ANGELES Conventional Premium $2.2924
ULSD $2.1373 RBOB $2.1274
CARB ULSD $2.1373 PBOB $2.4274
Conventional Regular $1.9799
Conventional Premium $2.1949 PORTLAND
CARBOB Regular $2.0449 ULSD $2.2997
CARBOB Premium $2.1949 Jet $2.1572
Suboctane Gasoline $2.1649
SAN FRANCISCO Conventional Premium $2.5099
CARB ULSD $2.1397
Conventional Regular $2.0349
Conventional Premium $2.3299
CARBOB Regular $2.0699
CARBOB Premium $2.3299
Brian Whary, 1.732.678.7739, firstname.lastname@example.org, www.dtn.com. (c) 2018 DTN.
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