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Dollar up, ANS down
OPEC+ adherence to cuts questioned as US production hits all-time high
Steve Sutherlin Petroleum News
Predictably, oil prices fell in early December as the U.S. dollar closed in on a two-week high, making crude pricier for holders of other currencies.
A plethora of other bearish factors ramped up the pressure on crude prices and losses accelerated on Dec. 6, slashing the price of Alaska North Crude by $2.61 to close at $75.98 per barrel. West Texas Intermediate plunged $2.94 on the day to close at $69.38, and Brent plunged $2.90 to close at $74.30.
ANS suffered a whopping $9.28 Wednesday to Wednesday loss from its Nov. 29 close of $85.16, as crude prices dipped to levels not seen since June.
Supply side matters weighed on prices as traders harbored doubts about adherence to voluntary supply cuts announced Nov. 30 by the Organization of the Petroleum Exporting Countries and its allied crude exporting nations. OPEC+ added some 1 million extra barrels per day of reductions to 1.3 million bpd of previous voluntary cuts Saudi Arabia and Russia had already in place.
"The voluntary element of the deal left the markets questioning whether the supply reduction would actually come into effect," said Fiona Cincotta, StoneX financial market analyst, Reuters reported Dec. 5.
Meanwhile, U.S. production soared, hitting an all-time high of 13.2 million bpd, slightly above the 2019 peak.
A surprise large drawdown of U.S. commercial crude inventories announced Dec. 6 by the U.S. Energy Information Administration could not stem the tide of losses.
Commercial crude inventories for the week ending Dec. 1 -- excluding Strategic Petroleum Reserve changes -- dropped 4.6 million barrels from the previous week to 445.0 million barrels, 1% below the five-year average for the time of year, the EIA said.
Analysts polled by Reuters had called for a 1.4 million barrel drawdown.
Conversely, total motor gasoline inventories jumped by 5.4 million barrels for the period to 223.6 million barrels -- 1% below the five-year average for the time of year. the EIA said.
Analysts from the Reuters poll foresaw an increase of just 1 million barrels.
Also, on Dec. 6, Russian president Vladimir Putin traveled to the United Arab Emirates and Saudi Arabia to discuss oil production cuts with UAE President Sheikh Mohammed Bin Zayed Al Nahyan and Saudi Crown Prince Mohammed bin Salman. Talks with Iranian President Ebrahim Raisi were scheduled in Moscow Dec. 7.
Pre-meetings, Russian Deputy Prime Minister Alexander Novak said OPEC+ stands ready to deepen oil production cuts in the first quarter, Reuters reported Dec. 5.
"The OPEC+ deal did little to support prices and given the days of declines that followed it, traders are clearly very unimpressed," said Craig Erlam, senior market analyst UK & EMEA, at data and analytics firm OANDA.
Dec. 6 losses followed losses Dec. 5 that saw ANS fall $1.05 to close at $78.58, while WTI fell 72 cents to close at $72.32 and Brent fell 83 cents to close at $77.20.
On Dec. 4, ANS fell 66 cents to close at $79.64, WTI fell $1.03 to close at $73.04 and Brent fell 85 cents to close at $78.03.
December started with red ink in the wake of the OPEC+ announcement the previous day. ANS plunged $2.83 to close at $80.30, as WTI slid $1.89 to close at $74.07 and Brent plummeted $3.95 to close at $78.88.
ANS plunged $2.03 Nov. 30 to close at $83.15, while WTI plunged $1.90 to close at $75.96 and Brent edged 27 cents lower to close at $82.83.
ANS held a $1.68 premium over Brent on Dec. 6, while WTI traded at a $6.60 discount to ANS.
WTI and Brent were each up 39 cents in early Dec. 7 Asian trading as Petroleum News went to press.
Ignoring Gaza conflict a mistake The oil market is not fully appreciating the potential disruption of the Gaza conflict -- and that's a mistake, Bob McNally, president of energy consultancy Rapidan Energy Group said in a Dec. 6 CNBC Squawk Box Asia interview.
Rapidan thinks the risk of the conflict expanding and disrupting oil and LNG is not factored in by the market.
"We put the odds at about 30% that Teheran and Washington will be unable to arrest the escalation here, but 30% is about 30% higher than where the market is," he said, adding that when Hamas said shortly after it attacked Israel that it didn't plan to open up a front, the market has been ignoring the Gaza conflict.
"Navy ships are being attacked; commercial ships are being attacked - and the United States military is beginning to respond lethally against Iranian proxies in the region," McNally said. "We're not out of the woods; it may not be a 90% probability, but it is not zero."
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