OPEC A Plus

OPEC Plus gets an A-plus as compliance comes to their agreed-upon production cuts that it is as high as 97%. Both OPEC and private barrel counters suggest that OPEC cheaters got the message from the Saudis and the Russians and are starting to toe the line. The Joint Ministerial Monitoring Committee (JMMC) meeting on Wednesday can focus less on threats to OPEC laggards and more on a plan for an exit strategy for cuts as the economy and oil demand continues to recover. With the stock market at record highs and a jump in President Trump's poll numbers that suggest that Vice President Biden's lead may not be as large as once thought, it is giving stock investors hope and rising oil demand expectations. We know job-killing regulations, and a big jump in taxes is the last thing that the economy needs. It is also the last thing that U.S. energy producers need as they struggle to rebound from the coronavirus hit.

OPEC improved compliance along with falling U.S. oil output is another reason why we most likely will see another sizable crude oil draw in tonight's American Petroleum Institute (API) report. An uptick in U.S. refinery runs and the fact that oil that was stored in the Strategic Petroleum Reserve when demand stopped is now entering an increasingly oil-hungry market. The trend of falling U.S. supply will be enhanced as China starts to buy 20 million barrels or more of U.S. oil.

China oil imports recently have been at record highs, and it appears that their oil demand is starting to exceed pre-coronavirus levels. Reuters reports that China's crude imports in July were 12.08 million barrels per day (bpd), while domestic output was 3.88 million bpd, giving total available crude of 15.96 million bpd. Refinery throughput was 59.56 million tonnes, the highest for a single month. However, in barrel-per-day terms, the 14.03 million bpd in July was just below the record 14.08 million bpd achieved in June. Subtracting the July refinery throughput from the total available crude leaves a gap of 1.92 million bpd, which likely flowed either to commercial storage or the SPR. This is down from the 2.77 million bpd gap seen in June but is in line with the average of 1.95 million bpd for the first seven months of the year.

The U.S. is also recovering, and even with Washington in gridlock overextended stimulus, the green shoots of economic recovery are there. The naysayers are wrong about the underlying strength of the U.S. economy and missed the boat and now are looking to play catch-up. The same can be said about the bears on oil that failed to understand that low prices can cure low prices as they shock the world into action. Spurred on by opportunity, entrepreneurs in quest of profits become smart. They found storage when there was none. Governments acted, and with the leadership of President Trump, Saudi Arabia and Russian put aside their differences and OPEC and Russia engineered the most significant production cut in history. That probably helped save many producers in the U.S. but not all U.S. energy companies from bankruptcy, saving many high paying U.S. jobs. 

The Trump Administration is finally allowing ANWAR to open up to drilling, and that is long overdue. Reuters reports, "The Trump administration on Monday finalized a plan to allow oil and gas drilling in Alaska's Arctic National Wildlife Refuge, putting it on track to issue decades-long leases in the pristine wilderness area before a potential change in U.S. leadership. The 19 million-acre (7.7 million hectares) refuge is home to wildlife populations including caribou and polar bears and has been off-limits to drilling for decades. But a Republican-passed tax bill in 2017 opened the area to oil and gas leasing, a key pillar of U.S. President Donald Trump's energy agenda to expand fossil fuel production on public lands. The Interior Department could hold a sale of oil and gas leases in ANWR by the end of the year, Secretary David Bernhardt said on a conference call with reporters. 

The Wall Street Journal is reporting that "Chevron Corp. CVX is in talks to invest in a major Iraq oil field, according to Iraqi officials, part of a string of prospective deals with U.S. companies signaling confidence in that country's energy industry despite years of instability and start-and-stop foreign investment. Chevron and the Iraqi government tentatively plan to sign a memorandum of understanding to develop one of Iraq's large oil fields in the south of the country, according to these officials. The preliminary deal, if it is consummated, could be announced later this week during a planned visit to Washington by Iraq's new prime minister. He is expected to meet President Trump on Thursday. On the sidelines of the visit, the U.S. and Iraqi officials also intend to unveil progress toward finalizing natural-gas and power-technology deals with Honeywell International Inc., HON -0.95% General Electric Co., GE -2.85% and Stellar Energy, the officials said.