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Oil Prices Under Pressure After OPEC Secretary General's Comments


Oil prices are starting the day under pressure after the OPEC secretary general Barkindo said it was too early to talk about extending U.S. production cuts. There are also demand worries as China is expected to lower its growth target for the year to 6.5 percent, compared with 6.7 percent last year, and put in new rules to try to cut back on pollution. This comes as rising rig counts are offsetting concerns about fighting in Libya that is halting most of Libya’s oil exports.

Libyan oil production reportedly has fallen close to 50,000 barrels a day to 650,000 as major export terminals have shut down due to fighting. Exports from Es Sider, the nation’s largest oil port, and Ras Lanuf, its third largest, have stooped. Libya oil production is still way below the high and this could create a void in what the market was expecting and should accelerate the oil market balancing.

But concern about an extension of OPEC production cuts are causing some traders to sell this morning. The OPEC oil minister comments are raising fears that an extension of cuts may not happen. I believe that this is just talk ahead of the April meeting to be in a better bargaining position.

It should raise pressure on non-OPEC producers like Russia that have taken their sweet time to lower their output to the agreed upon levels. While Russia says that they will be in full compliance by April ahead of the OPEC/non-OPEC meeting, the market is trying to judge whether OPEC members are getting a bit tired of Russia’s slow compliance. We do know that it is much harder for Russia to lower output because of logistical issues but OPEC may want to see a better effort.

China can’t breathe and they are lowering the boom to try to reduce emissions. This should bode well for the platinum and palladium markets as the use of those metals to reduce emissions in China will be key. Chinese coal consumption dropped for the third year in a row in 2016, while CO2 emissions grew only slightly and they are continuing to look for ways to do that. The quest for cleaner air may hurt economic growth and that may be one reason China is lowering its growth forecast.

In the meantime, the U.S. shale drillers continue to add rigs like there is going to be another oil boom. Baker Hughes Inc reported that oil rigs in the U.S. rose by seven to 609 rigs last week, a 17- month high.

Natural gas is getting a boost from some return of winter weather and a big drop in U.S. oil rigs last week. Natural gas rigs fell five to 146 in the past week raising concerns that the low price of gas will lower output. That comes as demand for natural gas rising. You might not know it because the warm wither has masked the growing structural shortage in this market. Natural gas is still a bullish accident waiting to happen.