While the International Energy Agency and I agree that the oil market will rebalance soon, the Saudi energy minister Khalid al-Falih warned traders that oil will take it's time to rebalance.

This reminder hit home in overnight trading after the American Petroleum Institute (API) reported that US crude supply surprisingly increased by 4.68 million barrels. The crude supply surge was led by another whopping 3.2-million-barrel increase in Cushing, Oklahoma. The builds in Cushing in recent weeks have kept supply in the US from falling harder and this week broke the recent strings of decline. The report caused oil, that had closed at another new yearly high, to turn lower in the overnight session. Oil will await confirmation of that decline when the Energy Information Administration (EIA) reports its version of the supply situation at 9.30a central time today.

Traders also will be watching the Federal Reserve Opec Market Committee today to see if they will raise interest rates for the first time this year. More than likely the Fed will not surprise us and the market will try to gather clues as to the amount of increases we can expect in the New Year. While some are hinting the Fed may shock and awe us with a 50-basis point hike, I highly doubt that this Fed, already accused of being too political by some, would dare take that step. Whatever the Fed does, it may be the last hurrah for many traders who may just square up their books for the rest of the year after the news is out.

Still as far as the OPEC/non-OPEC accord is going, it appears that we may see compliance come in at a record high as already the major players are warning clients they will be shipping less oil. The Russian oil ministry per Dow Jones is reporting that 12 Russian oil companies have agreed to cut production in the first quarter of the new year. The Russian oil minister said that they will meet with those companies to implement the cuts and perhaps remind them that someone from the Kremlin is watching. This non-OPEC production cut is Putin’s baby and he wants to make sure it works because it makes Russia the de-facto leader of all the non-OPEC producers like Oman, Mexico, Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Sudan and South Sudan that are now acting like a cartel. Putin likes that power and he won’t let a few oligarchs screw that up for him.

In fact, OPEC and non-OPEC working together is going to be a rising challenge for US producers who will be in competition basically with the rest of the oil producing world. OPEC and non-OPEC realize that overtime rising US shale production of oil and natural gas will make the US an energy powerhouse under a Donald Trump Administration. The US will be one of the world’s largest consumer, producer, importers and exporters and the Russians and Saudis want to stand firm to be in a position of strength against this US oil producing upstart. While right now the US and the OPEC and non-OPEC player’s interest will both benefit from higher prices, the controlling of so much supply by Russia and Saudi and their minions will be an area of potential conflict in the future.

The API also reported increases in gasoline inventories of 3.91 million barrels that may have helped stop the increases in the national average gas price that steadied after rising every day since the historic OPEC/non-OPEC decision. Distillates rose only 233,000 which was a bit supportive.

Cold or colder. Natural gas is still riding the wave of changing polar vortex weather forecast. We all know that temperatures will plunge but then warm up but what about after that? Weather models vary but a report by Weather Bell says, “Despite January starting warm, a prolonged stretch of colder than normal weather is on the way for the January to March period for much of the nation. There is a distinct threat of another extreme period like we are seeing in December.” If that is true, then more than likely the recent sell-off in natural gas was overdone as record demand and falling production should see us drawdown natural gas storage at a record pace after these cold periods. Obviously the vortex and its pattern seem to be changing but if we end up on the colder side of these forecasts, there is significant upside risk in this market.