Oil Price - May 10

[dan_s]

Finally a bullish storage report:

Oil prices were sharply higher in North American trading on Wednesday morning, hitting the strongest levels of the session after data showed a sizable drop in U.S. crude stockpiles.

The U.S. Energy Information Administration said in its weekly report that crude oil inventories fell by 5.2 million barrels in the week ended May 5.

Market analysts' expected a crude-stock decline of around 1.8 million barrels, while the American Petroleum Institute late Tuesday reported a supply-drop of 5.8 million barrels.

Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, decreased by 438,000 barrels last week, the EIA said.

Total U.S. crude oil inventories stood at 522.5 million barrels as of last week, which the EIA considered to be at the upper half of the average range for this time of year.

The report also showed that gasoline inventories declined by 150,000 barrels, compared to expectations for a fall of 538,000 barrels.

For distillate inventories including diesel, the EIA reported a decline of 1.6 million barrels. < We are exporting a lot of diesel

Crude has been under pressure in recent weeks, rattled by concern over increasing U.S. crude output that has shaken investors' faith in the ability of OPEC to rebalance the market.

OPEC and non-member oil producers are considering extending a global supply cut for nine months or more to give the market more time to rebalance, OPEC and industry sources said on Monday.

In November last year, OPEC and other producers, including Russia agreed to cut output by about 1.8 million barrels per day between January and June, but so far the move has had little impact on inventory levels.

A final decision on whether or not to extend the deal beyond June will be taken by the oil cartel on May 25.

Elsewhere on Nymex, gasoline futures for June rose 3.1 cents, or nearly 2.2%, to $1.517 a gallon, while June heating oil added 2.7 cents to $1.469 a gallon.

Natural gas futures for June delivery gained 3.8 cents to $3.265 per million British thermal units.

[dan_s]

U.S. crude imports fell last week by 799,000 barrels per day. < We are finally getting some evidence of falling OPEC exports.

[dan_s]

THIS IS REALLY BIG NEWS: OPEC hints at 9-month extension. Fearing further losses, Saudi energy minister Khalid al-Falih stated very firmly that the six-month extension is all but a done deal and he even suggested that the group is looking at extending the cuts “beyond” the end of 2017. In fact, an OPEC source told Reuters that the group is considering an extension until the end of the first quarter of 2018, a move that would provide a much stronger jolt to the oil market if implemented.

In my opinion, OPEC needs to extend the agreement through 3/31/2018 because the first quarter is the low point of the year for oil demand. In fact, most of the time oil demand drops from Q4 to Q1 and then ramps up sharply in Q2.

[dan_s]

If we get a higher close for crude oil tomorrow it may spark a short covering rally into the weekend.

In addition to the larger than expected draw from crude oil inventory, there was a nice increase in gasoline demand.