Is the market giving the historic OPEC/non-OPEC accord enough respect? Well, the key players do not think so. So as OPEC and non-OPEC meet this weekend at their so-called compliance meeting, look for the players to start jawboning the market higher. The oil market is finding support from a stronger than expected Chinese GDP and the possibility that OPEC and non-OPEC might start dropping hints about a further cut in production.

What do you have to do to regain respect? Maybe earn it? Despite evidence from the International Energy Agency and private oil production watchers, OPEC is complying with cuts yet there is a sense from oil producers that the market is not acting like it should. Comments made by Saudi oil minister Khalid al-Falih, the de facto leader of the OPEC, touted the compliance cuts and reversed course and said that further cuts might be considered. So to get the market’s attention, they may say or do something this weekend. This the first non-OPEC-OPEC meeting with Russia in attendance to try to shock the market out its doubtful complacency. 

The Chinese GDP came out 8 percent on the year in the fourth quarter, beating expectations which should raise oil demand expectations slightly and is supportive to oil because the sharp drop in U.S. oil output will improve expectations for Chinese oil imports.

The Energy Information Administration once again was way out of whack with what the American Petroleum Institute reported. The EIA reported that crude oil inventories rose 2.3 million barrels in the week to Jan. 13, compared with the API reporting a 5.042 million barrel decline in inventories. So which agency is from Mars and which one is from Venus? The headline crude number gave the market some weakness, a 1.3 million barrel drop in Cushing, Oklahoma and the fact that U.S. oil production in the lower 48 was flat week over week as opposed to expectations we would see another bump up in shale production output.

The oil build was also justified because the refinery runs fell 2.9% from a record high as some seasonal maintenance may start to kick in. 

We also saw U.S. gasoline inventories increase 6.0 million barrels but not nearly as large as the 10-million-barrel jump reported by the API.  

The EIA reported that U.S. natural gas withdrawals fell by a massive 243 bcf from supply putting working gas in storage almost 13% below an year ago levels and 2.6% below the five-year average. The draw suggests an underlining structural shortage in the market that can only be ignored because of a couple of weeks of above normal temperatures. The longer-term risk to this market is if prices stay low and we fail to reduce the trend of fallen production. That could cause a situation in the coming years where we could risk shortages or rolling blackouts down the road. Still, there are more forecasters now predicting a cold February and that could be a blessing, by raising prices and making it clear to the market that there is a dangerous supply situation developing. 

No signs of a Trump inauguration dump in stocks like many predicted and that’s a good sign for oil. For both oil and gas, we feel we should move higher from current levels.