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OPEC Faces Daunting Task To Drain U.S. Inventories

OPEC

Friday June 2, 2016

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Saudi strategy to cut exports to U.S.

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- Saudi Arabia’s new strategy to balance the oil market is to cut oil exports to the U.S. specifically, an effort to accelerate the inventory drawdown.
- The strategy shift comes after six months of disappointing results – surging U.S. inventories earlier this year offset the effect of OPEC’s production cuts.
- Bloomberg reports that Saudi Arabia intends to cut exports to the U.S. by about 15 percent, reducing volumes below 1 million barrels per day. That would be the lowest level of exports in years.
- Because the U.S. has the most transparent and publicly-available oil storage data in the world, the strategy is intended to provide a jolt to market sentiment.
- If traders start to see weekly drops in U.S. inventories accelerate, it will likely push up oil prices.

2. Futures curve offers bullish hope

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- Goldman Sachs says that OPEC’s strategy should be to induce a strong backwardation into the futures market, a situation in which front-month oil contracts trade at a premium to futures a year out.

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