• 2 days U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 2 days Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 2 days Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 2 days Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 2 days Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 2 days TransCanada Boasts Long-Term Commitments For Keystone XL
  • 2 days Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 2 days Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 3 days Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 3 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 3 days Venezuelan Output Drops To 28-Year Low In 2017
  • 3 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 3 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 3 days Kinder Morgan Delays Trans Mountain Launch Again
  • 3 days Shell Inks Another Solar Deal
  • 4 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 4 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 4 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 4 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 4 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 4 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 4 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 4 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 4 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 5 days Norway Grants Record 75 New Offshore Exploration Leases
  • 5 days China’s Growing Appetite For Renewables
  • 5 days Chevron To Resume Drilling In Kurdistan
  • 5 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 5 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 5 days Nigeria Among Worst Performers In Electricity Supply
  • 5 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 6 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 6 days Saudis To Award Nuclear Power Contracts In December
  • 6 days Shell Approves Its First North Sea Oil Project In Six Years
  • 6 days China Unlikely To Maintain Record Oil Product Exports
  • 6 days Australia Solar Power Additions Hit Record In 2017
  • 6 days Morocco Prepares $4.6B Gas Project Tender
  • 6 days Iranian Oil Tanker Sinks After Second Explosion
  • 9 days Russia To Discuss Possible Exit From OPEC Deal
  • 9 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
Alt Text

The World’s Most Expensive Oil

There are hundreds of oil…

Alt Text

Strong Oil Demand Growth Supports Oil At $70

Brent crude retreated a bit…

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.

More Info

Could We Finally Have A Meaningful Oil Price Rally?

Could We Finally Have A Meaningful Oil Price Rally?

Oil prices are finally building some momentum.

In a sign of a resurgence, oil prices are at their highest levels in weeks, with WTI jumping more than 6% and Brent more than 5% on April 6. The revival is uncertain and tenuous, but the rise appears more justified than it did back in late February.

There are a few reasons for the newfound bullishness in the oil markets. First, rig count declines are starting to slow. After several months of massive drop offs beginning in December 2014, rig count declines have slowed to a trickle. In the last two weeks, oil rigs fell by 12 and 11, respectively. So, instead of the oil patch losing 60 or 70 rigs each week, the pace of removal is down to about a dozen, raising the prospect that the industry is nearing the bottom. It may be hard to see on the graph below, but the very end of the line is starting to flatten out. At some point in the not-so-distant future, rig count losses will fall to zero and eventually rebound. Related: Many Big Guns Still Betting On Oil Comeback In 2015

OilRigCount

Click Image To Enlarge

A second reason for the price rise is the increasing likelihood that production has also flattened and is approaching a decline. U.S. production fell in the last week of March by 36,000 barrels per day. But those figures will likely fall faster in the months ahead as shale wells that were drilled in 2014 start to see their output drop off. Shale wells suffer from a rapid decline after an initial burst of production. With wells drilled in 2014 set to decline this year and much fewer wells to replace the lost flow, overall U.S. production will start to drop soon. Related: EIA Changes Tack On Latest Oil Crisis

Another reason for the price surge was due to the markets shaking off concern that Iranian crude will suddenly flood the market in the wake of the major breakthrough in negotiations with the West over its nuclear program. Iran hopes to ramp up production by an additional 1.5 million barrels per day, and that prospect caused a selloff in the days leading up to the framework agreement. But the markets overreacted. The tough task of finalizing the nuclear deal is still a few months away, and even if all parties can overcome hardliners in their respective countries, sanctions will not be lifted until after the International Atomic Energy Agency is satisfied with compliance, adding several more months of time. As a result it will likely take until 2016 at the earliest before Iran will be able to ratchet up its crude exports.

With the threat of a new flood of oil off the table for now, the markets have now turned to the fourth major reason oil prices are suddenly up: Saudi Arabia raised its price for oil going to Asia, for the second consecutive month. The official price raise reflects higher demand from Asian refineries, as Asian consumers have started to show demonstrable increases in demand due to low oil prices. Saudi Arabia sells its oil at a discount to the Dubai benchmark, and the price increase will narrow that spread. Related: Who’s To Blame For The Oil Price Crash?

The fifth reason for the surge in prices (which is in part an extension of the previous point) is that demand is starting to pick up in earnest, and not just in Asia. Refineries in the U.S. are running through crude at a rapid clip, helping to shave off some of the excess supply. Margins are fat, so there is a big incentive for refiners to process at full capacity. And the rate of refining will only increase in the coming months as the summer driving season begins, helping to ease the burden on oil storage.

Crude at the all-important storage hub of Cushing, Oklahoma is trading at a discount because inventories are piling up. As a result, more oil is getting piped down to refineries on the Gulf Coast in Texas and Louisiana. Cushing inventories fell by 300,000 barrels in the week ending on April 3, a sign that downstream demand is starting to put a dent in upstream supply. Whether or not the inventory drawdown is credible and sustained remains to be seen, but the data suggests that oil storage capacity may not fill up in the way that it originally appeared just a few weeks ago.

All of these factors point to an oil price rebound.

By Nick Cunningham Of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • tom on April 08 2015 said:
    Nick,

    I agree with the article but you didn't mention anything about today's EIA or yesterdays API numbers. Are these weekly reports becoming more meaningless?
  • Dan on April 09 2015 said:
    I agree with Tom above. It seems that last week's inventory build goes against all expectations and the oil price has done a complete 180.

    How is it possible for such a large build i stocks when production is declining? I see imports at 829,000bopd were quite high and amounted to almost 6mm bbls for the week, but this is maybe c.1mm bbls more than previous week, not 10mm bbls. It all seems very fishy to me!?
  • Peter on April 09 2015 said:
    Indeed, you didn't say anything about yesterday's EIA report which confirms that stockpiles are building up at an ever bigger rate. Plus the fact that Russia and Iraq are producing at record levels, plus the consequences of the Iran deal on the oil market, plus the current Saudi stance. You'll find that your optimism is short lived.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News