Crude: Mission accomplished

Mission accomplished. No, I'm not talking about the trade war, but we could be seeing progress on that, and not the attack on Syria, that has not happened, yet. No, we are talking about the global oil market rebalancing. The International Energy Agency that previously warned of lower for longer oil prices and warned last year that the oil price recovery was threatened by the possibility of weak demand now has changed its tune and is now saying that it is 'mission accomplished' for OPEC as oil stocks shrink at a record pace.

The IEA reports that the commercial stocks, in industrialized nations, fell to just over 2.8bn barrels by the end of February. This is only 30 million barrels above the five-year average. If the trend continues we could fall below average in global oil supply next month at a time when global demand is well above average.

And instead of talking oil glut, the IEA is now warning that while it is not for them to declare victory for the cartel, if OPEC keeps doing what they are doing, oil supply will become too tight and lead to a price spike.

Of course, the energy report has been warning of that, and to be honest, it may be too late to change that outlook. OPEC production is on the downside and it is unclear that they have the ability or the inclination to raise production as supply tightens. On top of that, the world is counting on the U.S. shale patches to account for most of the NON-OPEC supply growth. So instead of spending money on expanding oil exploration, production and infrastructure, it appears that we will be left on the short end of the oil stick.

The IEA popped oil overnight on the IEA “mission accomplished” report but it pulled back on reports that Russia is now looking to retaliate on U.S. sanctions by banning many goods and services from the U.S. This news offset good news about the ratcheted down of trade tensions with China and the possibility the U.S. could be re-entering the Trans-Atlantic Partnership. MarketWatch reports that “One year after withdrawing the United States from the Trans-Pacific Partnership, President Donald Trump has asked his top economic advisers to study the possibility of re-entering the trade pact negotiations. Trump has deputized Robert Lighthizer, the U.S. trade representative, and Larry Kudlow, the director of the National Economic Council, to study the possibility of re-entering the TPP if the terms were favorable”, the president told a group of lawmakers on Thursday. If the deal gets done, that should further improve oil demand prospects, yet threats by Russia could slow that down.

Reuters is reporting that Russia’s lower house of parliament is to consider draft legislation that would give the Kremlin powers to ban or restrict a list of U.S. imports, reacting to new U.S. sanctions on a group of Russian tycoons and officials. 

The Kremlin itself has not said if it backs the draft legislation -- which would allow the government to impose the measures should the need arise -- and it was not clear if would it become law in its current form. The Russian parliament is often used to send assertive messages to foreign states, but these do not always translate into concrete measures. Large-scale restrictions on U.S. goods and services would hurt American firms but could also cause significant disruption in Russia, where consumers flock to McDonald’s restaurants, fly to vacations in Boeing jets and use Apple phones.

Naureen S. Malik at Bloomberg reported that we saw the biggest seasonal decline in U.S. natural gas as stockpiles in seven years. Yet, that still isn’t enough to convince bearish traders to relax their grip. 

Lingering demand for the heating fuel amid an April cold spell drove stockpiles down by 19 billion cubic feet last week to 1.335 trillion, leaving supplies 22 percent below normal for the time of year, government data show. Inventories usually climb in the spring as the weather warms. Though the spring chill has eroded stored gas supplies, production from shale basins has soared to new highs, threatening to overwhelm consumption of the fuel and send prices crashing. Without a scorching summer to boost air-conditioner use and stoke gas demand from power plants, inventories refill at a breakneck pace.