OIL BRIEF: OPEC and Allies Within Reach of Goal

By Christopher Sell

(Bloomberg) — OPEC and its allies are close to wiping out a crude surplus and expect the market to re-balance in the second quarter, according to people familiar; The oil industry faces a tense wait as Iran sanctions too close to call; Total is keeping faith with Venezuela.

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Rakteem Katakey, John Deane

OPEC and its allies are almost within reach of their goal of clearing a glut in the oil market, according to people familiar with data being assessed today by the producers’ technical committee. Global oil inventories are close to their five-year average and the market should re-balance in 2Q, according to the people. The faster-than-expected rebalancing is being helped by higher compliance rates as well as increased demand ahead of the northern hemisphere’s driving season, said the people.

Total is keeping faith in Venezuela even though its oil production is slumping as working in the Latin American country gets increasingly difficult. Total’s oil production in Venezuela has dropped to as low as 70,000 b/d from 120,000 barrels earlier “because there is a lack of operators, a lack of money from PDVSA,” CEO Patrick Pouyanne said.

Oil rallied above $69/b after a surprise drop in U.S. inventories added to signs the market is in balance before a key OPEC meeting. Futures in New York rose as much as 1.2% after gaining 2.9% in the previous session. Focus is now shifting to whether OPEC and its allies will signal an extension of supply cuts at their meeting on Friday in Saudi Arabia.

Brent and WTI December to December spreads surged on Wednesday, after the Brent flat price closed above a major Fibonacci retracement. The Brent call skew extended gains to the strongest level since 2014, while the global oil benchmark’s implied volatility hit the highest level since September. WTI closed above the upper Bollinger band for the first time in a month.

Fuel smuggling is costing Libya about $750 million a year, the head of the country’s National Oil Corp. said. About 30 to 40% of fuel produced and imported by Libya is stolen or smuggled, Mustafa Sanalla said, according to the text of a speech delivered in Geneva. He urged international institutions such as Interpol to aid domestic agencies in breaking up smuggling rings in the country.

Chart of the day: America’s hoard of crude as well as oil products has dropped below a commonly used dividing line for surplus versus deficit for the first time since 2014. U.S. commercial petroleum stockpiles dipped by 10.6 million barrels to about 1.2 billion barrels last week, according to government data compiled by Bloomberg. Gasoline and distillate inventories recorded the biggest weekly declines among the group, falling by about 3 million barrels each.

Brazil’s state oil company Petrobras opened an internal probe last year into fuel-trading and ship-chartering contracts with Trafigura and Glencore. The oil producer formed a commission in August 2017 to “investigate possible irregularities in contracts” with Trafigura and Glencore, Petrobras said in a filing with the U.S. Securities and Exchange Commission. It didn’t disclose whether the commission has completed its probe.

PDVSA, which relies heavily on U.S. oil to run its refinery in the island of Curacao, canceled plans to import American grades in April and May as sellers demanded payment ahead of delivery. The price was right, but parties couldn’t agree on the payment conditions, according to people familiar with the situation. PDVSA typically offers to pay after cargo delivery or makes the payment with oil products and crude.

Open interest in Chinese oil futures for September delivery was at 7,314 contracts on Wednesday, rising from 6,501 on Tuesday, according to Shanghai International Energy Exchange data. That is almost five times higher than on its March 26 debut. The previous high for open interest was 7,237 on April 12.