Pinning down accurate energy production numbers has historically proven to be more challenging than gauging the trend of energy inventories.

In the past couple of weeks, there were several miscommunications about whether and why Saudi Arabia oil production moved back above 10 million barrels per day in February. Although the Saudis are still bearing the brunt of production cuts from the OPEC deal, they seem to be sending a message that they won’t do it alone.

The reason given by officials for why the slight Saudi production increase in February was supposedly not significant was that it went into domestic storage rather than immediately dumped on the international market for sale. This is clearly an underwhelming response lacking in legitimacy. Production is production. Just because it isn’t sold immediately doesn’t mean it escapes the laws of supply and demand on a longer term basis. Markets are all too aware of that when it comes to pricing a commodity such as crude oil.

Although combined production cuts resulting from the OPEC deal are said to be greater than combined production increases from the US and others, meaning inventories should be moving into balance, global inventories keep rising–particularly in the US. Something isn’t adding up. Until we have a better explanation for why inventories are not moving toward balance as expected and why that will change, oil will trade heavy. The initial OPEC-inspired bump is over and selling crude rallies right now has a more favorable outlook than buying dips.

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