Oil prices rallied on a Reuters report yesterday saying that OPEC and its allies will consider whether to deepen cuts to crude supply when they next meet in December due to worries about weak demand growth in 2020, four sources from the cartel said. Yet overnight comments from the Russian oil minister Alexander Novak, seemed to be playing a bit hard to get, as they often do ahead of the meeting. Keeping the drama on high until we get to the meeting. It is being reported again by Reuters overnight that Russian Energy Minister Novak has, “No information about possible discussions of deeper oil production cuts at December OPEC plus 1 meeting." Maybe those four OPEC sources should have let him in on that.

Yet really, are additional cuts needed? I mean OPEC compliance after the Saudi Attack was over 200% and even before that was well over 100%. In fact, all OPEC has to do is legitimize its over-compliance and they would not have to change production levels to give the market a boost. Besides, if the American Petroleum Institute (API) is any indication, a big drawdown in distillates once again may signal that despite concerns about a slowing economy, a production cut by OPEC may be ill-advised.

The crude whisperers seemed to miss it, at least in the API version of weekly supply, when the API reported a 4.451-million-barrel crude build, about twice what the surveys were calling for. The build was led by a bigger than expected 1.988-million-barrel build in Cushing, OK that probably reflected ongoing reefing issues in the Midwest.

Yet you can’t ignore another 3.491 million barrel drop in distillates, a growing concern as we get closer to winter. The new International Maritime Organization, or IMO 2020 rule will set the new limit for ocean going vessels to 0.5% by weight, down from 3.5%, which was established in 2012. U.S. supplies, which according to the Energy Information Administration, are already 11% below the five-year average and now looks to fall further this week. The FT reports, “the change is expected to boost demand instead for cleaner fuels, including marine gas oil, a distillate akin to diesel, and low-Sulphur fuel oil. Traders say this is beginning to affect oil product prices. The market premium for refined oil over crude reflects the notional profit to be gained by refiners of petroleum products. In the case of refining gas oil from Brent crude, it has increased by 19 percent since September 1, to $18.58 a barrel on Tuesday. As the IMO rule was finalized, some analysts warned it could inflate global oil prices, since it incentivizes refineries to search for the best grades of crude for making lower-Sulphur marine fuels. The U.S. government joined several flag states in seeking to phase in the rule’s implementation, without success.”

This is raising serious questions as to why refiners are not ramping up to meet the challenge. So are they hoarding ultra-low diesel in tankers to try to profit on the new rules but then it does not explain why refiners are not ramping up output. So, refiners, I need to hear from you. One theory that I have heard and have bounced off of some of my refining contacts, is that low runs are in part because some refiners are having a hard time ramping up because of the lack of heavier grades of crude. I have heard different responses to the question. So if you have some insight on the issue let me know so we can share. It will be good to know whether the refining issues are more transitory in nature or more systemic.

The Energy Information Administration (EIA) may have a different take on this week’s number. Watch the crude number as it is expected that we will see more oil released from the Strategic Petroleum Reserve. Also look at gasoline as the API reported a drop of 702,000 barrels and is signaling that U.S. demand is still strong.

Frosted windowpanes may be coming to a window near you. Just as some forecasters were walking back from their winter blast forecast, they now seem to be telling us that may have been premature. So when I get confused, I check with Bret Walts at Bamwx.com. He says forget about a warm-up. In fact, he says that yesterday’s mid-day American data is trending much colder right now. There is certainly merit to these trends. We have another recurring typhoon in the West Pacific that typically supports bigger cold risks in the Central to Eastern US. We've gained almost 14 points on the heating degree day scale so far and this runs out to the end of the month. Yikes! His report seemed to turn the natural gas market or maybe it was a coincidence! Whatever, I am going to look for the earmuffs.