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Oil Rises On OPEC Jawboning, Libyan Turmoil

Oil rig

Oil is charging higher to start the new week, on the ebb and flow of production freeze rhetoric and adverse developments relating to returning Libyan exports. Hark, here are five things to consider in oil markets today:

1) As the meeting of OPEC members looms next week, we are set for heightened scrutiny of rhetoric over the next eight days. (Oh good). Apprehension ahead of the meeting is already manifesting itself in financial positioning; hedge funds boosted their net long positions in WTI last week, driven by the covering of bearish short positions, while gross long positions were also reduced.

Given the potential for upside from jawboning (we're already getting it today from Venezuela, with President Maduro saying a deal could be announced this month to stabilize the oil market), it makes logical sense that hedge funds are moving to the sidelines, sitting this one out.

(Click to enlarge)

2) We discussed here a month or so ago how Oman would not be participating in next week's meeting in Algeria, after expressing its disappointment at OPEC's inability to address low oil prices. Oman is the Middle East's largest producer who is not in OPEC, producing ~1 million barrels per day, with foreign operators in the country reporting rising production.

As our ClipperData illustrate below, the vast majority of Oman's crude finds its way to China - with nearly 1 million bpd delivered there last month - mostly a function of timing, with July's volumes subdued.

(Click to enlarge)

3) While China dominates in terms of the destination for Oman's oil exports, the U.S. has seen a return to form in terms of receipts. After not receiving any Omani crude since July 2013, there has been six consecutive months of arrivals. Related: Can India Become An LNG Juggernaut?

All of this medium sour crude has been heading to the U.S. West Coast, and predominantly Tesoro's Wilmington refinery, although a variety of other refineries received deliveries earlier in the year:

(Click to enlarge)

4) While OPEC members continue to ratchet up production ahead of next week's meeting, Russia's output has also increased to a post-Soviet record in early September. After field maintenance has been completed, output has now clambered over the 11 million bpd mark, according to the Russian energy ministry:

(Click to enlarge)

5) After starting its seasonal descent with the passing of Labor Day, retail gasoline prices on the national average have started to rise higher in the last week, buoyed by the part-closure of the Colonial pipeline due to a spill in Alabama.

Despite six states facing possible gasoline shortages, the issue will hopefully be short-lived, and both regional and national prices will ease lower once again. While supply concerns escalate for the Northeast - for both gasoline and diesel as mammoth stock draws are expected on Wednesday - an equivalent build-up of product is underway on the Gulf Coast - going some of the way to offset part of the bullish influence.

 

(Click to enlarge)

By Matt Smith

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