Oil prices saw weakness as disappointing compliance numbers from Russia shook the faith in the long-term viability of OPEC production cuts. Even as OPEC compliance is at an astonishing 94% compliance rate, there are some concerns that the cheating Russians and rising shale output may cause fissures in the OPEC/non-OPEC pack.

Even when predicting strong OPEC compliance, we knew that Russia would take a bit longer to hit compliance targets. I said this and just to be clear I had no contact with any Russian officials either before or after the OPEC cuts were announced! The market got a little freaked as it was reported that Russian oil production was steady at 11.1 million barrels of oil a day in February. That was despite Russia’s energy minister Alexander Novak pronouncement just days ago, that Russia’s oil production in February will be lower than the January output, claiming that Russia was cutting more than the 117,000 barrel away from January. Still, while it may take time, the Russian oil minister swears that his country will get to full compliance and will be trying to speed up the gradual cutting of the 300,000 bpd it had promised by the end of the first half with a possible target of early next month.

Unlike OPEC, for Russia it is harder to ramp up and shut off production. The timing will depend on the capabilities of the companies, the minister said, as quoted by RIA Novo due to the formations and weather that the Russians have to deal with. On top of that, Russia has to coordinate with many different and separate oil companies. Despite market doubts, I predict that Russia is going to get close to an 88% compliance rate soon, just ahead of the next meeting with OPEC to talk about an extension of oil production cuts. Still even with Russia cutting only a small amount, non-OPEC only compliance has been estimated to be anywhere from 48 percent to 66 percent depending on who you want to believe and that is still better than most of the street predictions after the deal was made.

The other real reason why oil was down was the dollar. The Fed fund futures has doubled its expectations for a March interest rate increase and they will hang on Fed Chair Janet Yellen’s every word. Yesterday was a dollar day as it caused a lot of selling in almost every commodity. We saw a big drop in silver and talk of a massive sell order had that metal exceed the drop off others in the sector. Talk that palladium and platinum will get a big bounce as China puts in new tougher rules for auto makers. Grain prices were under a pullback as well and oats really collapsed while soybeans and meal and ethanol pulled back to support. Wheat, corn and OJ held up the best. So, if we see a break in the dollar, most commodities will make a strong comeback.

The oil price crash is forcing oil producers to be leaner and meaner. Oil Price reported that the production costs for Canadian natural resources for North Sea came in around $42 per barrel, well below the current rate for a Brent barrel at $55.17, down by a third compared to the year prior.

The Energy Information Administration (EIA) reported that natural gas in underground storage increased by 7 billion cubic feet (bcf) in the week ending February 24th. This left storage levels 7.3% lower than a year ago, but 14.3% higher than the five-year average. Even with a historically warm winter, storage levels lag last year’s lofty levels. When we had a hot summer last year we used record amounts of natural gas and burned the entire surplus. This year we have a much smaller surplus at this point. With a little blast of cold, natural gas traders are going to have start worrying about price spikes next summer as natural gas production more than likely will fall.