OPEC Keeps Cutting Production
The Organization of Petroleum Exporting Countries (OPEC) held meeting number 172 last week in Vienna, Austria. Predictions going into the meeting were that OPEC would continue production cuts for another 9 months, and some were speculating cuts for another 12 months.
OPEC and non-OPEC countries eventually agreed upon a 9-month extension of cutting 1.8 million barrels of production per day to help balance the market. Crude prices dropped $2.5 on Thursday while diesel prices closed 5 cents lower on the day.
As OPEC continues to cut production, we must keep an eye on the drilling in the United States. As of last week 908 oil rigs were drilling in the U.S., which represents 504 more than last year when prices were near $30 per barrel. With break-evens in shale oil primarily falling in between $45 and $48 per barrel, American oil producers have been active in hedging and increasing production, much of which has offset OPEC cuts.
From a diesel standpoint, prices on the Board have primarily traded between $1.47 and $1.70 per gallon for 2017. These levels appear to be where the market considers value on diesel, as crude oil continues to trade on a range bound manner.