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Curiously, the price of oil took a beating following last Thursday’s announcement that OPEC and Russia would extend their production cuts for another nine months. For what was a seemingly positive declaration, the oil markets were looking for more conviction.

Despite a 1.8 million barrels per day drop in production from OPEC and Russia since the end of 2016 (see Figure 1), crude oil and product storage tanks in OECD countries have not yet retreated much.

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Levels remain stubbornly high at about 350 million barrels above typical. To accelerate the draining of global storage tanks, the market was hoping that OPEC and Russia would tighten their valves more and for longer.

While the OPEC announcement underwhelmed the market, industry watchers should now turn their eyes to oil demand.

Demand for oil is expected to accelerate in the northern hemisphere this summer. The American Automobile Association (AAA) is predicting a heavier than normal U.S. driving season; expecting that cheap gasoline and a stronger American economy will have more motorists hitting the highways. When the official numbers are tallied, the AAA predicts that this past Memorial Day weekend (which marks the official start to the U.S. summer driving season) will record a 12-year high for distance travelled.