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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Oil Up As Bullish Sentiment Returns To Markets

Oil Up As Bullish Sentiment Returns To Markets

Oil prices surged to close out the week on April 8, pushed up by a rash of news that provided a jolt to oil markets.

U.S. Federal Reserve Chair Janet Yellen gave a speech on April 7, dismissing worries that the U.S. was on the verge of a recession. Speaking on a panel with former Fed Chairs Ben Bernanke, Paul Volcker and Alan Greenspan, Yellen dismissed questions of the U.S. “bubble economy,” citing 5 percent unemployment and few signs of inflated asset prices. She also said that the rate hike in December was not a mistake. “Yesterday’s speeches by Fed’s Janet Yellen increased market optimism on the U.S. economy,” Michael Poulsen, oil analyst at Global Risk Management, told The Wall Street Journal.

At the same time, oil traders are putting a lot of eggs in the OPEC basket. Oil prices have lurched back and forth following even the smallest comments related to the April 17 summit in Doha. Prices jumped whenever a top OPEC or Russian official sounded optimistic about coordinated action, but crude would also sell off sharply whenever someone downplayed the potential for an agreement, such as when Deputy Crown Prince Mohammed bin Salman told Bloomberg that Saudi Arabia would only freeze production if Iran did as well. For now, crude markets eagerly await the outcome. Related: Oil Edges Up After Biggest Draw In U.S. Crude Stocks This Year

“The market is in suspense until the meeting. Until then, unless there are sudden changes in rhetoric by the major players, the market will stay in a wait-and-see mode,” Barnabas Gan, a commodity analyst at OCBC, said in an interview with the WSJ.

As Oilprice.com has repeatedly noted, the physical effect on oil market fundaments will be minimal. But that does not mean that prices won’t move on the news from Doha, whether positive or negative. “The market can be fooled, and we have been fooled,” Ole Hansen of Saxo Bank A/S told Bloomberg. “We have seen almost a 50 percent recovery in oil prices since the first signs of verbal intervention emerged back in January. So a lot has been achieved already without doing anything, so I think at this stage they will be very happy if they can just keep the market in the belief that action can be taken if necessary.”

Appearances will likely matter more than the substance. If OPEC and Russia announce a deal, prices will jump, while a failure to do so will push oil back down into the mid- to low-$30s. Related: Canadian Oil Industry No Longer Sees Alberta Advantage

But there is also some concrete oil data to take note of. While the rally between February and March was largely driven by speculation rather than changes to supply and demand, there are finally some signs that the physical market is seeing some change.

The weekly data from the EIA is increasingly revealing a market that is on the mend, albeit slowly. According to the agency, the U.S. produced 9.008 million barrels per day (mb/d) for the week ending on April 1, down another 14,000 barrels per day from the week before. The monthly figures, which are more accurate but are released with a several month lag, show that U.S. production declined by another 56,000 barrels per day in January, dropping to 9.179 mb/d. The trend is moving in the right direction, and the U.S. has lost nearly 700,000 barrels per day in output over the past year. Those declines are expected to continue, and in the next few weeks the EIA could release data showing that output has fallen below the 9 million-barrel-per-day mark.

(Click to enlarge) Related:ExxonMobil’s Secret Weapon Against Low Oil Prices

Arguably just as important are the storage figures, which also point in the right direction, finally declining after two months of gains. For the week ending on April 1, U.S. oil inventories fell by 4.9 million barrels. 

(Click to enlarge)

U.S. refineries are running at a higher rate than they were at this point last year as gasoline demand is near a record high for this time of year. With refineries pulling excess crude from storage, inventory levels are dropping, at least based on one week’s worth of data. And with fewer and fewer barrels coming out of the ground, storage levels could continue to decline.

(Click to enlarge)

In short, production is falling and demand is rising. It will take time, and day-to-day movements will be volatile, but the trajectory for prices is clear.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • James on April 10 2016 said:
    Very accurate article, however the article pertains to just U.S. data. Albeit relevent, the other leading producers could offset the U.S. drop in production. Fundamentals ultimately win when deciding price direction.
  • avenger 426 on April 11 2016 said:
    Oil up, economy drops...basic economics.
  • CX Lewis on April 15 2016 said:
    536M Barrels Oil in Storage, up by 6.6M.

    200M barrels crude in tankers. Line would stretch 25 miles. Waiting times to unload > 4wks. Could cost $15/barrel extra for shipping delays.

    Invest in clean energy like wind and solar which have tremendous growth rates ahead.

    Buy companies that make lithium for batteries. A sure bet.

    Sell oil and gas. They are so twentieth century. This is the next century
  • Ben on April 22 2016 said:
    Oil stoped falling after overall helplessness before the its excess production Then Putin , the man of action and power joined the talk process, and hope returned. The divercity of actions always enthrall the stupids.

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