Having already traded heavy much of the Monday despite pressure on the dollar index which is trading near session lows, oil took out session lows moments ago on what appear to be three most recent catalysts.
First, Kuwait’s oil minister shook some of the market’s conviction that the Vienna OPEC oil production cut is being adhered to, when we said that the announced cuts so far make up just 60-70% of the total decrease pledged by OPEC and other major producers.
Trying to put a positive spin on the news, Kuwait’s Essam Al-Marzouk told reporters in joint conference with OPEC Secretary General Mohammad Barkindo in Kuwait City, that he is confident the remaining countries will comply with promises to cut oil production, even though as he admitted “not all producers have to cut output from Jan. 1” and that one should look at the cut as a phase in process to “average over 6 months.” We can only assume he was referring (mostly) to Russia, which repeatedly warned it will need months to catch up to its promised quota. It would be troubling if other OPEC nations are having “problems” complying with the cuts. Recall that Iraq has already accused its semi-autonomous Kurdish region of oil production that was roughly double what it was afforded per the Vienna quota.
Al-Marzouk also said, or rather hoped, that rising demand would clear some stored oil, and would help return balance in market although it was questionable just how much marginal demands one would see out of China, which has been filling up its SPR at a rate of roughly 1 mmbpd when oil prices were lower, and has warned buying would taper as prices rose, effectively suggesting precisely the opposite of what the Kuwait suggested.
Complicating matters for the oil bulls, was a a second report according to which Nigeria’s oil production in December rose to 1.9mmbpd, up roughly 100kbpd from the November output of 1.8mmbpd, which in turn was a nearly 30 increase from October. In a video posted on his Facebook account, Nigeria Oil Minister Emmanuel Kachikwu his country plans to sell oil blocks in 2017, adding “we are going to be conducting oil blocks allocation and marginal field awards to try and raise money for the government” in hopes of phasing out term contracts for crude this year.
Kachikwu said that “we are going to firm up long-term markets, we must stop the year-to-year crude term contracts” and also added that “you’ve got to find who are your long-term partners, how do you sign 5-, 6-, 7-year strategic relationships? We are going to be working on those to gravitate away from the year-to-year contracts.”
The Nigerian oil minister also said on the Facebook video that he expects “a bullish re-entry” by oil majors to find reserves. “We are going to be seeking to attract investments and complete all the MoUs that we began – the one in China, the one in India, we are looking to do a roadshow to the U.K. for Europe, we’re looking to do a roadshow to the U.S.”
In short: instead of less supply, we are starting off 2017 with additional output from the deal-exempt OPEC nations, while those who should be complying are in no rush to do so.
Finally, topping off the trifecta of negative crude news was the previously reported announcement from the DOE that the US will soon sell 8 million barrels from the Strategic Petroleum Reserve over the next few weeks.
As a result, oil which was down all day, just hit session lows.