Crude oil futures extend yesterday's rally ahead of the OPEC compliance committee meeting in Vienna this weekend, with U.S. crude +2.3% to $52.59/bbl and Brent +2.4% to $55.48 in response to positive talk about how much supply oil producers have taken offline.
OPEC members and some producers outside of the group, including Russia, will establish a compliance mechanism to verify producers are sticking to the deal to reduce output by 1.8M bbl/day, OPEC's secretary general tells Reuters.
Also, Saudi Energy Minister al-Falih told the World Economic Forum in Davos that 1.5M bbl/day of the pledged cuts already have been taken out of the market.
The International Energy Agency believes that global oil markets were tightening even before cuts promised by OPEC and non-OPEC producers kicked in.
While it is "far too soon" to gauge OPEC members' levels of compliance with promised cuts, the IEA said oil stocks in the developed world fell for a fourth consecutive month in November, although they remained more than 300M barrels above the five-year average.
Oil and gas discoveries around the world fell last year to just over 6B boe, the lowest since the 1940s, after companies reduced their search for new resources amid falling oil prices, according to the Rystad Energy consultancy.
The decline in discoveries means companies such as Exxon (NYSE:XOM) and Shell (RDS.A, RDS.B) are likely to struggle to offset the natural depletion of existing fields, reinforcing forecasts of a supply shortage by the end of the decade, Rystad says.
Companies were able on average to replace only 10% of their oil and liquid gas reserves last year, compared with a reserve replacement ratio of 30% in 2013, and the number of exploration wells drilled fell by 40% from 2014 when oil prices began their sharp decline.
Crude oil prices rally for a second straight day, with WTI +1.4% at $52.98/bbl, supported by reports that key OPEC members were cutting production as promised and on forecasts of strong demand growth in China.
Saudi Energy Minister Khalid al-Falih said today that the kingdom has cut production to its lowest in nearly two years, and that the OPEC deal would accelerate the rebalancing of the global oil market.
Iraq's oil minister says his country has cut its oil exports by 170K bbl/day and was cutting them by another 40K bbl/day this week, and Kuwait's oil minister says his country has ct its oil output by more than it promised under the OPEC deal.
Crude prices also are helped by China's forecast for domestic crude demand to reach a record 594M tons this year (~12M bbl/day) and net crude imports to rise 5.3% to 396M tons (~8M bbl/day) in 2017.
U.S. crude oil climbs 3.2% to $52.45/bbl after EIA data showed that refiners processed a record amount of crude and that supplies fell at the Cushing, Okla., storage hub.
U.S. refiners churned 17.1M bbl/day of crude into fuel last week, the highest weekly figure going back to 1982, while Cushing stockpiles, which have been rising in recent weeks, fell by 579K barrels.
Prices recovered after initially falling in reaction to a higher than expected rise in total crude oil inventories to 4.1M barrels, and U.S. production jumped to more than 8.9M bbl/day during the week, the highest read since April.
But analysts say the stockpile gains largely were driven by an increase in oil imports, which rose to their highest level since 2012 as shipments of crude that were delayed at the end of last year for tax purposes are starting to appear.