Global Oil Prices Edge Higher on China Data, Slowing US Production Signals

Andrew Cummings
July 17, 2017

Last week, oil prices jumped by as much as 5% after the markets saw signs of a recovering demand for the commodity along with a slight slowdown in the USA oil production which has been an issue for the oil markets as it has dampened the OPEC's efforts in driving oil prices up and preventing a global oversupply.

Oil prices staged a smart recovery after having seen consistent selling pressure in the last few weeks as negative news-flow dented sentiment.

"There are some encouraging signs that things are getting better for crude, last weeks healthy stock draws in the USA and the rig count slowly but surely not increasing at the rates they were earlier on in the year, but fundamentally we are still in an oversupplied market", said Matt Stanley, fuel broker with Freight Investor Services (FIS).

In 2015, the Obama administration had approved export of oil, after 40 years of embargo on crude oil exports.

Even after the OPEC agreed to extend its oil production cap until next year, oil prices have remained trading below the $45 but has recovered the past two weeks due to the low but ongoing decline in US crude output.

Both countries have seen a significant increase in oil production in May and June. Therefore, according to Rex Preston Stoner, an energy consultant with USA -based HUB International, "joint action by the OPEC/NOPEC producers may remain necessary for the medium term, if not the long term, if crude is to avoid another price crash".

According to Bloomberg New Energy Finance (BNEF), electric vehicles will replace about 8 million barrels of oil demand per day by 2040.

"The renewables still have major challenges and they do not compete with oil", he said. Meanwhile, WPX Energy (NYSE: WPX) is planning on running 10 rigs this year and add as many as three more in 2018 to accelerate its production growth. Markets have been awaiting data on market re-balancing and better demand this year could help bring the oil market close to balance later this year.

The bounce in prices could extend in the near term given that most of the bearish triggers have been baked into prices. For example, Continental Resources' initial 2017 guidance called for it to add a rig and ramp up its well completion activities from five crews to seven, which would enable the company to produce 19% to 24% more oil by the end of the year. Crude oil production rose back and touched 9.4 mbpd.

Oil prices inched up on Monday, supported by a slowdown in the growth of rigs looking for crude in the United States and because of strong refinery demand from China. That scenario could send oil prices rebounding sharply later this year, especially if several shale drillers announce plans to scale back their overly ambitious growth programs.

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. The Motley Fool owns shares of Devon Energy.

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