The market is currently trading down on all fronts this morning as U.S. production ramps up in the wake of the recent surge in oil prices. According to last week’s Baker Hughes data, U.S. drillers have increased rig counts for a 10th straight week to the highest level in over a year; 529 rigs. Over 100 rigs have been added since early September, and believe it or not, it seems that the market is reacting more to this information than the cuts that OPEC members, and Russia for that matter, are making. Saudi Arabia, Qatar, and Kuwait are among several oil producers that are implementing the cuts they agreed to late last year; however, increases in supply in other areas around the globe are limiting any upward movement in the market.
Iraq, for example, exported a record high in the month of December from its southern port in Basra, which many market analysts, such as Bob Yawger from Mizuho Securities USA Inc., believe is the first sign of a crack in OPEC compliance.
Compliance is going to be the source of concern this month and probably for the first half of 2017. While U.S. production numbers are collected and made public on a weekly basis, most countries are not as transparent. Several OPEC and non-OPEC producing countries could take weeks or even months to share their data, which makes the ability to validate the agreed-upon production cuts nearly impossible. It will be imperative to monitor not only production reports, but also storage/stockpiles of crude oil as well as exports from all countries involved in the production cuts.
Domestically, Chicago RBOB cash differentials were quite volatile last week. After posting mid-week highs of nearly $0.1250 over the NYMEX, they settled on Friday a penny under the Merc. A recent increase in physical product can be attributed to the late week weakness.
As mentioned earlier, the market is feeling the pressure of the Baker Hughes data. WTI is down $1.58 to $52.41/bbl, RBOB is down $0.0490 and ULSD is down $0.0494.