Following supply glut and lackluster global demand, oil prices remained low for more than three years. Since late 2014, crude oil went from over $90 a barrel to under $30. However, the market has recovered from their historic lows with prices finally rebounding to the $50 a barrel threshold mark. The improving commodity pricing environment looks somewhat sustainable on tightening supplies, improving demand outlook and OPEC deal extension talks.
However, while OPEC’s moves to trim output and rebalance the demand-supply situation have stabilized the market to a large extent, in the process it has incentivized shale drillers to churn out more. Per Energy Information Administration’s (“EIA”) latest inventory release, U.S. production rose 88,500 barrels a day in September.
The overall picture for the sector seems rather optimistic.
The latest weekly release from Baker Hughes shows positive signs for the oversupplied oil market, wherein it reported a fall in oil and natural gas rig count in the United States. The total U.S. rig count fell by 4 to 936, for the week ended Oct 6. The rig count fell fourth time in the last five weeks as the energy companies reduce their spending.
Investors have also pinned hopes of recovery over the recent U.S. Energy Department’s inventory releases that show multiple weeks of strong inventory draws in the domestic crude stockpiles — pointing to a slowdown in shale output. The latest report revealed that crude inventories slumped by 6 million barrels for the week ending Sep 29, following a decrease of 1.8 million barrels in the previous week.
U.S. crude oil plus products comparative inventories have declined 120 million barrels in 26 of the last 32 weeks. Improving domestic demand scenario and increased crude oil exports support the data.
Adding to the positive momentum, OPEC and fellow exporters also announced plans to remain open to extend their production-cut agreement beyond March. Some cartel members including less compliant nations like Iraq have also signaled another around of supply cuts.
