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Oil Prices Rally As OPEC Deal Seems More Likely

Offshore loading terminal

Happy Nonfarm Friday! After selling off strongly so far this week, oil prices are mustering a bounce into the holiday weekend, encouraged higher by an underwhelming employment report and an (initial) strong sell-off in the dollar. Even though the dollar has reversed course, oil is holding onto gains. Hark, here are four things to consider in oil markets today:

1) Saudi Arabia's Deputy Crown Prince Muhammed bin Salman met with Japanese Prime Minister Shinzo Abe yesterday to discuss how to boost cooperation between the two nations.

Saudi Aramco has been leasing storage capacity from Japan since 2010, currently leasing ~6.29 million barrels of storage capacity on Japan's Okinawa islands. One result from the latest meeting between the two nations is an agreement for Saudi Aramco to increase its storage on Okinawa by roughly 2 million barrels - bolstering its position in Asia.

Saudi is already Japan's leading source of crude imports. Approximately a third of Japan's ~3.1 million bpd of (slowing shrinking) imports come from Saudi Arabia. Nearly 30 percent come from UAE; combined with Qatar, these three nations account for over 70 percent of imports.

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2) We were just discussing here earlier in the week how the latest update we had on the Chinese SPR was from last December, which stated its strategic reserves were up to 191 million barrels by mid-last year.

Well, we have just had an update from the National Bureau of Statistics, which states oil reserves have risen by 22.5 percent between the prior assessment to the start of 2016, up to 233 million barrels. A breakneck pace of stockbuilding has persisted through the first third of the year as Chinese imports ramped up to a record at this time (before retracing since).

3) We highlighted earlier in the week how loadings of Nigeria's Qua Iboe have dried up in the last couple of months due to a renewed force majeure. Another troubled grade is Forcados; a pipeline explosion six months ago has crimped crude loadings of this key Nigerian crude stream.

Last year, exports of Forcados averaged nearly 300,000 bpd. Since March, loadings have dropped to average below 100,000 bpd. There is good news, however: the Forcados pipeline is set to resume deliveries this month as repairs are concluded; we will avidly watch our ClipperData for a response in loadings.

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4) Finally, as we head into the Labor Day weekend, retail gasoline prices are at $2.22/gallon on the national average, the lowest level for the time of year since 2004. Enjoy!

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By Matt Smith

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