How The OPEC “Cut” Actually Added 1 Million Barrels/Day To The Oil Market

How The OPEC “Cut” Actually Added 1 Million Barrels/Day To The Oil Market

Well I’m not sure if I’d call it “bullish”, but as I’ve noted before “less dismal than yesterday” now counts as “good” news for oil prices and between the API numbers and the EIA report (both of which were delayed by a day this week due to the holiday), the picture is maybe “less dismal” than Tuesday.

You’ve probably seen the numbers by now, but here’s the recap:


  • Crude inventories fell 884k bbl last week
  • Cushing -1.73m bbl
  • Gasoline -893k
  • Distillates -4.23m


  • Crude +564k Bbl, Median Est. +3,250k Bbl
  • Cushing crude -1,528k
  • PADD 3 crude +887k
  • Gasoline -2,628k vs est. -1,500k
    • PADD 1B gasoline -933k
  • Distillates -4,924k vs est. -1,000k
    • PADD 1 Distillates -2,368k
  • Refinery utilization -1.1 ppt vs est. +0.1 ppt
  • Refinery crude inputs -187k b/d
  • Crude imports -1,205k b/d
  • Crude production +24k b/d

The reaction:


“U.S. crude stockpiles rose, despite API reporting a draw, yet the gain was smaller than forecast, [but] the drop in gasoline and distillate stocks [was] the constructive part of report,” Bart Melek, the head of global commodity strategy at TD Securities in Toronto, told Bloomberg by phone.


The bottom line, as Bloomberg goes on to note, is that crude inventories are at record levels and have gained for seven straight weeks with domestic production topping 9m b/d. The build came “despite record exports and big drop in imports.”

There you go.

But if you’re paying attention or haven’t otherwise been asleep all day, you probably knew all of that. Indeed it’s such a f*cking broken record that I wasn’t even going to mention it until I found a punchline.

Here’s that punchline, courtesy of Bloomberg:

OPEC and its partners probably need to prolong production cuts simply to counteract the glut they created just prior to the deal, according to Citigroup Inc.

The Organization of Petroleum Exporting Countries and allies including Russia don’t need to cut output much further to rebalance world markets, Citigroup’s Ed Morse said. However, they’ll likely need to keep output low once the accord expires in June in order to clear supplies added while negotiating the deal last year, he said. Producers will decide in May whether to prolong their agreement.

“The OPEC cut ironically added a million barrels a day of oil to the market” because producers ramped up before the deal took effect, Morse said in a Bloomberg television interview with Francine Lacqua and Tom Keene. “One of the ironic aspects of that two-month period when they all over-produced is that” it means the supply deal “probably needs to be extended.”


If that sounds familiar, it’s because either it’s common sense or because you heard me say it earlier this week. Here’s the specific Heisenberg quote from Tuesday:

Along these same lines, it’s worth noting that when we talk about OPEC cuts, it’s not exactly like they were cutting from suppressed levels of production.

So what this means is that if OPEC doesn’t extend the deal – which I contend that they may not, depending on how the Saudis are feeling about the debt market (i.e. if investors are still as starving for Riyadh’s debt as they apparently were in October when the kingdom’s $17.5 billion offer was hugely oversubscribed), the Aramco IPO, and Tehran’s ability to fund the three Sunni/Shiite proxy wars raging in Syria, Yemen, and Iraq – then what you effectively got with the production “cuts” was a production “hike.” 

Add that to record US inventories for both crude and gasoline and you’ve got yourself a full retard dynamic. And as always, you…


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