Loose Pumps Sink Oil

Loose lips could sink ships in World War II but today the concern is that loose pumps might sink the oil market. OPEC drama after OPEC leaders rejected Russia’s proposal to raise oil production by 500,000 barrels a day in February caused the biggest correction in oil in weeks. Sure it did not help that England went into the third lockdown and Germany is going to stay in lockdown until February, and Japan is considering another state of emergency for the Tokyo area because of Covid. Yet what seemed to shake the confidence of the oil bulls was fear that OPEC and Russia could cause another production war.

Pump Jack, Oilfield, Oil, Fuel, Industry, Petroleum

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There were tensions after Russia seemed insistent on wanting to raise output but the Saudi Prince Abdulaziz warned that it was not time yet because the market is still fragile. He said that loose pumps might sink the oil market and traders agreed by selling the market off hard when they sensed that there may be no agreement. Yet a new day and hopes have dawned that Russia will relent at today's meeting. Russia though always plays hard to get. Alexander Novak can get very entrenched in his position. Even the UAE who was on Russia’s side seems to be backing down. Regardless of the decision, the reality is that at least for this week, we should see inventory tighten.

Tonight we get the American Petroleum Institute (API) supply report. I expect to see at least a 4.1-million-barrel crude draw. Some are predicting even a larger draw. HFRI Research is calling for a 12,33 million barrel draw. If correct that should help propel crude back towards the $50.00 a barrel area.

The product side must balance what has been recent strong demand recovery versus the possibility of more Covid lockdowns. For this week I am looking for gasoline supply to be down 2 million barrels and for distillates to be down 3 million barrels. Refinery runs should stay on their upward trend and should rise by 1.0 million barrels. Gasoline down 2.0 million barrels.

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