Why I Love To Blog -- Reason #78 -- May 2, 2017

The other day I suggested that "we" need at least another 60 weeks of OPEC production cuts to "rebalance" supply / demand.

So, back to the note. The other day I suggested that "we"  need at least another 60 weeks of OPEC production cuts to "rebalance" supply / demand. Today, there are analysts suggesting that OPEC needs to extend cuts through the end of next year (2018).

From an earlier post today:

OPEC cut: another six months won't be enough -- Bloomberg data points:

• OPEC cuts may need to be extended through end of next year (2018) -- well beyond end of this year, as currently being discussed
• talk of sub-$40 oil if US stockpiles increase
• Harold Hamm: US oil output is poised to expand this year by at least 400,000 bopd, most of it from the Permian Basin, to a level of about 9.4 million bopd

Note. 60 weeks: that's the minimum needed, but I don't believe that will be enough for two reasons, neither of them have to do with US shale production:

• major conventional projects that were begun in 2009, 2012, and 2014 are coming on line now
• the 60 weeks assumes a 3-million bbl drawdown every week from now

For me, that's the metric I will be following: the weekly US crude oil inventory drawdown, +/- 3 million bbls.

By the way, now that Saudi Arabia owns the "crown jewel" of the US refining system -- the Port Arthur refinery in Texas, with current capacity of 600,000 bopd throughput -- expect Saudi imports into the US to increase. In fact, they already have. In the most recent data available, the US has imported 32% more oil from Saudi Arabia than the same period one year earlier. This was well into the OPEC agreement to cut production.

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