Oil price reversed course after a mixed Energy Information Administration (EIA) supply report. There were also comments that Saudi Arabia is going full out and will immediately implement their 486,000 barrel a day production cut to show they are serious about compliance and to inspire other producers to do the same. The story came from Bloomberg that an unnamed source said the Saudis were going to go full compliance so others will do same. Iraq has begun implementing measures to reduce national oil output in keeping with an OPEC decision, the oil minister said on Thursday. This comes after the market was trying to make sense of the last supply report of the year that showed a huge drop in crude supply but an even bigger rise in distillate and gasoline supply that had traders not sure what to make of the data.

The EIA reported that crude oil supply increased by 7.05 million barrels while distillates increased by 10.05 million barrels and gas by an astounding 8.31 million barrels. We saw a build of 1.074 million barrels in Cushing, Oklahoma that was a surprise especially after the overall supply fell by such a massive amount and while U.S. oil production did rise, it was only because of an uptick in Alaska and not in the Lower 48 where the trade is going to look for evidence of a rebound in U.S. shale oil production. Refinery runs at a historically high 92% of capacity as distillate production edged up on the week while gasoline production slipped. Demand for gasoline dropped slightly week over week and distillate demand fell by a huge 1.175 million barrels a day. Based on the weird numbers and declining exports, I am sure there is some year end tax considerations going into these numbers or as Donald Trump would say, the oil guys are being very smart. 

In the big picture, the US energy revolution is in its early stages and is on track to change not only the U.S. perceptions about energy supply but also the world. In fact, the Energy Information Administration released its long-term energy outlook that is predicting that the United States will become a net energy exporter for the first time since 1953. Taking it a step further, in a press conference where the EIA’s Adam Sieminski said that, “The U.S. could be completely, and the phrase that was used at one time, energy independent” in the next decade. In other words, the goal of the US President since Richard Nixon was to get the US Energy Independence we are on the cusp of achieving that goal. This should be more incentive for OPEC to comply with their stated production cuts becuae they will have less influence on the price in the coming decades. This may be OPEC’s last hurrah to drive up prices so they better get it right or we will be once again being talking about OPEC’ s road to irrelevance.”

China worries persist as the Chinese currency reversed course after China lifted its daily currency fix by the most since they depegged in 2005.  That erased the two-day gains by the renminbi Yuan.

The EIA reported what may be its last bearish natural gas report. Natural gas market is still fighting the so-called warming weather even as we will see supply fall further below the five-year average and the potential for record withdrawals in the coming weeks. The EIA said that working gas in storage was 3,311 Bcf as of Friday, December 30, 2016, according to EIA estimates. This represents a net decline of 49 Bcf from the previous week. Stocks were 364 Bcf less than last year at this time.