The GERM Report

-We should know better about OPEC chatter by now, folks.

-So much for the support from the products side.

So it looks like some us drank the UAE Kool-Aid and some of us didn’t. We spent the last few days wondering about fissures within the crowded OPEC+ curtailment group only to find it was nothing more than the usual blather that precedes just about every big meeting. That should only support us so much, however. U.S. jobs data was a disappointment, while products – which in part supported the November bull run – saw a frustratingly high build last week.

We haven’t seen any trends develop in the trade patterns for U.S. crude that will give us a clue on direction, but a mid-day bounce suggests prices might jump higher on the week. Brent crude oil was up 1.6% as of 3:25 pm. ET to trade at $48.17 per barrel.

We noted yesterday there were more questions than answers on the mood in the virtual room in Vienna given the UAE’s new-found confidence. But the UAE is not Saudi Arabia and, as a low-cost producer, would unlikely survive the ensuing price war that would follow an OPEC+ breakup. We still wonder if there’s something afoot, however, given that signs of tensions ahead of pivotal OPEC meetings are almost guaranteed. Either the UAE overplayed its hand, we were all horribly bored with the pandemic, or it was taking a hit for Saudi Arabia while Riyadh herded the rest of the players in to the corral. We’ve commented that, for sellers, leaving a deal that’s kept crude oil prices more or less supported in arguably the worst of economic times would be suicidal. But keeping this many players in line is understandably difficult and we could expect a break in rank once a vaccine is distributed to ease the strains of the pandemic next year.

Our guest last week, Tracy Shuchart, noted that demand was propping up in unexpected places. Shipping volumes rose last week by 2.4% year-on-year for its biggest improvement since October 2018. Trucking deliveries also saw a boost, adding up to sizeable demand for products such as diesel.

But on Wednesday, the EIA gave us a shocker by reporting crude oil inventories were barely dented, while the situation was entirely different on the product side. Despite all the news about those silly Americans traveling all over the place during the holiday, gasoline stockpiles increased by 3.5 million barrels. For diesel? Levels surged by 3.2 million barrels last week.

Elsewhere, payroll processor ADP reported there were new hires last month, but the figures came in about 100,000 less than expected. To some surprise, it was the services sector that saw major growth last month. That’s troubling on two fronts; that mean all those silly Americans kept going out to eat in seemingly complacent fashion and, with those jobs now sidelined by new restrictions because of the surge in cases of COVID-19, December numbers might not be so great.

We’re discounting any talk of a U.S. stimulus at this point and assume most of the vaccine optimism is baked in already. For Thursday, hold on to your video conference calls cuz it’s OPEC time.