December 2016 Commodity Snapshot

  • In addition to the 1.2 million barrels per day (bpd) OPEC cut announced in November, non-OPEC countries led by Russia in December pledged to cut an additional 568,000 bpd.  Russia leads the eleven countries with 300,000 bpd in cuts with Mexico at 100,000 bpd, Oman at 45,000 and Malaysia and Azerbaijan byopec production quota 35,000 each.  Of course, Mexican production is falling anyway and the first half of 2017 is a common time to do maintenance so no real output will be lost.  OPEC kept crude production at very high levels around 34.5 million bpd in December, following a substantial jump of 720,000 bpd in November, JBC Energy reported.  Russian oil production in December stood unchanged at 11.21 million bpd, flat month on month and at its highest in almost 30 years
  • Compliance is already a question as Libya and Nigeria are looking to increase production further (they are exempt from the lowered quotas) with 270,000 to come from Libya’s Sharara and El Feel fields to be reopened over the next three months.  Saudi Arabia claimed in early January that they have implemented their cut.  However, Iraq’s autonomous Kurdish region was already accused of exporting more than its share of its allotment.  Iran may conform to its production limits but it has increased sales of oil that were already loaded on tankers (and exempt from its quota) – reducing the quantity of oil it stores on tankers from 29.6 million barrels last October to just 16.4 million barrels now.  Until OPEC’s May meeting when the quotas will be reassessed, one must monitor the news for the amount of cheating – and there will be cheating!
  • The US is going ahead full bore with exporting both oil and products to the rest of the world.  While the bulk has gone to Canada, which benefits from long-standing agreements, Curacao (a Caribbean country whose refinery produces products for China), Netherlandsus oil exportsand United Kingdom all imported decent oil volumes.  Gasoline, distillates and propane left the US in record volumes at the end of December, largely destined for Latin/South America.
  • Finally, Russia needs the love still from Donald Trump as while higher oil prices have improved the fiscal situation, real disposable income and retail sales are posting flat to negative numbers.  Industrial production has picked up but that has been in conjunction with the growth in oil production.  How long will the Trump-Putin bromance continue?  Can their relationship survive the next hack?

David Burkart, CFA
Coloma Capital Futures®, LLC
Special contributor to aiSource