Energy Report: Not So Lonely

Being an oil bull is not as lonely as it was a few months ago as the bullish fundamentals are becoming clear even to the most die-hard bears. Despite skepticism that OPEC Plus could keep it together and reduce global supply is now not in doubt. Global inventories are tightened and we are seeing that cargoes are being bid up due to tightening supply. Oil is getting even more support from Saudi Arabia, now the world’s biggest oil exporter, when they agreed at an OPEC+ summit to make additional, voluntary oil output cuts of 1 million barrels per day (bpd) in February and March. This is one reason that oil is not getting too worried about a drop in OPEC compliance.

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The latest S&P Global Platts survey of OPEC+ crude oil production for December saw Libya’s oil revival and slipping compliance among members with quotas pushed the bloc’s output to a 7-month high. They put OPEC output at 25.43 mil b/d, non-OPEC allies added 12.74 mil b/d. That dropped compliance to 98.5% from 100.1% in November. Libya's output hit the highest since June 2013. The UAE, Iraq also posted production increases while Nigeria dropped. Saudi Arabia's production was 9.01 mil b/d, Russia's at 9.10 mil b/d.

In fact now with President Trump on the way out and President-Elect Joe Biden's desire to transition away from oil, it will give the Saudis a free pass to jack up the price of oil without the fears of a nasty tweet giving the Kingdom a large influence over global oil prices. This comes as China’s oil demand is soaring as it appears that China is way ahead of the rest of the world in recovering from the COVID-19 demand drop.

The crude oil market is holding up good even as the dollar starts to rally after months of a downtrend. Refining runs in the US and US exports should surge, drawing in US supply. Shale producers may not respond until we see oil solidly in the 50s but that is not dissuading some from securing Federal leases before President-Elect Joe Biden stops new leases. The AP reported that energy companies stockpiled public land drilling permits in the Trump administration’s final months, an AP analysis of government data shows. The permits threaten to undercut President-elect Joe Biden's plans to curb drilling to address climate change.

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