After a 70 percent drop in the price of oil during the last two years, oil traders are desperate for any scrap of news that the situation is turning around. Some seemingly good news came on Wednesday when Iran’s oil minister called the pact made by the Saudis, Qatar, Venezuela, and Russia a “first step” toward stabilizing the badly over-supplied oil markets. This announcement sent oil prices soaring so that New York futures closed on Wednesday at $30.66, up from around $26 on Friday and London closed at $34.50, up from $30 late last week.
As numerous observers pointed out, an agreement to freeze, not lower, oil production from record highs when the the world is producing at least a million b/d more than is being consumed is not going to do anything for the oil glut or prices. None of the four members of the “pact” is in any position to make substantial increases in their oil production anytime soon so that the announcement was mostly a meaningless gesture, unless one buys into the argument that agreement on anything related to oil production is good news. Iran and Iraq which are in a position to increase production in the coming year have said nothing about freezing production. On the contrary Iran announced that it was on track to increase oil exports by 500,000 b/d in the next 30 days – which it asserts is its right after three years of sanctions.
The weekly US stocks report, which is the best indicator of changes in US stocks was delayed by the holiday until Thursday morning this week. The API’s pre-EIA report survey suggests, however, that US stocks dropped by 3.3 million barrels last week. This quick survey occasionally gets even the direction of the move wrong and frequently does not explain the reasons for crude stock changes. The fundamentals still say the markets are oversupplied and the situation is likely to get worse.
North Dakota reported on Wednesday that its production fell by 28,000 b/d from November to December. Of more interest is the information that the wellhead price of North Dakota crude is now down to $16 a barrel from $32 in November and that the active state drilling rig count has fallen from 64 to 41 in the last three months. The North Dakota rig count is now down 81 percent from the highs a few years ago. The number of North Dakota oil well completions was 77 in November and 76 in December. While this number is likely to decline, there are still 945 wells in the state that have been drilled but are waiting to be fracked so that well completions can be maintained for another year or so even if there is minimal new drilling.
The chaos in Syria continues to worsen as Kurdish forces advance across northern Turkey in the wake of Russian bombing. This advance has the Turks upset to the point they have been trading fire with the Kurds across the border. Ankara says that only a ground operation by outside powers can stop the war now. The Turks say they are ready to go if enough allies join them. Washington is yet to be heard from on the issue. Regional stability and the eventual prospects for oil exports get worse with every passing day.
China’s exports and imports fell more than expected in January adding to concerns about where China’s economy and demand for oil and everything else it imports are going. China’s crude imports fell to the lowest in three months in January, down by 4.6 percent year over year. The numbers for February will likely be lower but will be skewed by the New Year’s holiday when the country mostly shuts down for a week. Sinopec announced that it is closing down four oilfields that are no longer economical at today’s prices.