Providing coverage of Alaska and northern Canada's oil and gas industry
June 2024

Vol. 29, No.23 Week of June 09, 2024

ANS hovers higher

ANS stays above $80 as crude stumbles on OPEC+ production reinstatement

Steve Sutherlin

Petroleum News

Alaska North Slope crude added 86 cents to close at $80.92 per barrel June 5 -- the single up day in a five-day trading week which saw ANS plummet $5.44 from its close of $86.36 the previous Wednesday, May 29.

West Texas Intermediate rose 82 cents June 5 to close at $74.07, and Brent rose 89 cents to close at $78.41. ANS traded at a $6.25 differential over WTI, and at $2.51 over Brent.

ANS didn't descend into the $70s over the week, but it came close, closing at $80.07 June 4 after shedding $1.14, while WTI fell 97 cents to close at $73.25 and Brent fell 84 cents to close at $77.52.

The most dramatic downdraft of the week came June 3 when ANS plummeted $3.00 to close at $81.21, WTI plunged $2.77 to close at $74.22 and Brent plummeted $3.26 to close at $78.36.

The negative price action came on the heels of the 37th OPEC and non-OPEC Ministerial Meeting June 2 where the Organization of the Petroleum Exporting Countries and its allies extended crude production cuts as widely expected -- which would have been bullish -- however, traders were spooked by a plan to phase out some of the cuts beginning in October.

OPEC said in a release that the level of overall crude oil production for OPEC and non-OPEC Participating Countries would be extended past Dec. 31 to the end of 2025.

Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman met in person in Riyadh on the sidelines of the meeting and decided to extend their additional voluntary cuts of 1.65 million barrels a day -- which were announced in April 2023 -- from Jan. 1, 2025, through the end of December 2025, according to a separate OPEC release.

In addition, the same group said voluntary cuts of 2.2 million barrels per day which were announced in November 2023 and set to end in June would be extended through the end of September 2024, whereupon the cut will be "gradually phased out on a monthly basis until the end of September 2025 to support market stability." The phaseout can be paused or reversed according to market conditions.

OPEC+ is currently curtailing output by a total of 5.86 million barrels per day -- some 5.7% of global demand, according to a June 5 Oilprice.com report.

ANS fell 68 cents May 31 to close at $84.21, as WTI fell 92 cents to close at $76.99 and Brent fell 24 cents to close at $81.62.

On May 30, ANS dropped $1.47 to close at $84.89, WTI dropped $1.32 to close at $77.91 and Brent slid $1.74 to close at $81.86.

Surprise crude inventory build

Crude prices rose June 5 despite a surprise build in U.S. crude supplies.

Commercial crude inventories -- excluding the Strategic Petroleum Reserve -- rose 1.2 million barrels to 455.9 million barrels in the week ended May 31, 4% below the five-year average for the time of year, the U.S. Energy Information Agency said in its June 5 Petroleum Status Report.

Analysts polled by the Wall Street Journal had predicted crude stockpiles would decline by 1.6 million barrels.

The SPR was up by 898,000 barrels to 370.2 million barrels.

Total motor gasoline inventories jumped 2.1 million barrels for the period to 230.9 million barrels, 1% below the five-year average for the time of year, the EIA said.

The WSJ poll forecast gasoline inventories to increase by 900,000 barrels.

Distillate inventories leapt 3.2 million barrels to 122.5 million barrels, 7% below the five-year average for the season.

Overreaction to OPEC+ announcements?

It may be unwise to attempt to rationalize the market reaction to the June 2 OPEC+ meetings, according to analysts led by Commodities Research Head Paul Horsnell at Standard Chartered Bank.

"It may be best to categorize the price undershooting as the consequence of markets that are dominated by a combination of extreme macroeconomic pessimism and speculative shorts, topped off with a layer of often over-enthusiastic algorithmic trading that crowds out more fundamentally based traders," the analysts said in a note, as reported by Rigzone June 6.

Overall, the OPEC+ decisions will ultimately prove positive for oil prices, the analysts said.

"To the extent that some media and analysts have (ex-post) justified the fall in prices, the dominant rationale given is that the market is concerned about a significant volume of OPEC+ oil returning in 2024," they said, adding that they do not think this explanation holds much water.

"The increase in output in 2024 is relatively small; targets for the eight countries involved are unchanged until October when, subject to market conditions, the plan is to commence a series of gradual month on month increases that finish in September 2025," they said. The analysts said, "most commentary seems to have concentrated solely on the plan to phase out the November 2023 voluntary cuts," underweighting "significant components to what was agreed."

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