Energy Prospectus

Oil remained under pressure Tuesday morning as the rift in Middle East ties continued to grip.

Oil seesawed Monday as a Saudi-led alliance broke off ties with Qatar, alleging its neighbor backed terrorism. Potential disruption to oil shipments are being weighed against fears of a possible unraveling of an OPEC-led accord to curb output. < Both are highly unlikely, but oil traders don't like uncertainty.

American Petroleum Institute stockpile data is due out later in the session. It will be followed Wednesday by Energy Information Administration inventories.
The EIA is forecast to report a fall in U.S. crude stocks of 3.45 million barrels in the latest week. Last week, the EIA reported a drop in U.S. crude oil storage of 6.4 million barrels, more than double the forecast. However, the surprisingly large draw did not stop the decline in oil prices.

From Enercom:

Societe Generale reports that if OPEC production cut compliance is maintained, oil stocks will begin to decrease in the rest of the year. Global oil demand is projected to grow by 1.3 MMBOPD this year and in 2018. This increased demand, combined with decreased output from OPEC, means that the implied drawdown is 0.6 MMBOPD in 2017 and 0.5 MMBOPD in 2018.

Both years will see most drawdowns in the second half of the year.

According to RBC Capital, inventories are already decreasing, though it may not be obvious. Total OECD oil stocks are about 280 MMBO higher than the five-year average currently. However, this is primarily due to the U.S. American stocks account for nearly 70% of the excess in storage currently. This situation has led RBC to predict that the U.S. will be the last major region to rebalance. However, RBC does anticipate that stocks will eventually balance out, probably in mid-2018.

IEA estimates the cartel has been earning an extra $75 million per day compared to the previous year despite cutting production from 33.3 million barrels per day to 31.9 million barrels per day currently. < This is why OPEC will keep extending their quotas.