Oil rebounds as United States crude inventories ease off record high

Nymex reformulated gasoline blendstock-the benchmark gasoline contract-rose 0.4% to $1.60 a gallon.

Given a bit more time, the world’s bloated oil inventories will decline as production cuts by the Organization of Petroleum Exporting Countries and Russian Federation take effect, while fuel consumption remains strong, the banks predict.

Even with Wednesday’s price rise, Brent and WTI both remained in technically oversold territory for a sixth day, their longest such streaks since November. Most OPEC nations will be hard-pressed to bear another major drop in prices, while previous attempts at crashing the market have been demonstrably unsuccessful in taking down larger shale operators. In that case, US production will continue to rise.

Though it is not clear which companies the President’s administration has contacted, many major USA oil companies have stated their support of the climate change deal previously.

If the USA shale industry steps in and fills the gap, causing prices to weaken yet again, those participants will be forced to increase output to generate greater oil revenues to fill the shortfall in government income.

The potential for increased US production continues to build, as Baker Hughes weekly rig count data showed an increase of 14 drilling rigs in the United States.

Turning to demand, the IEA estimated that “having expanded by 1.6 million bpd in 2016, global oil product demand growth is forecast to decelerate to 1.4 million bpd in 2017”.

Lower prices tend to have a positive effect on demand for products.

Total U.S. crude oil imports grew to 7.9 MMbpd in 2016, almost 515,000 bpd higher than in 2015. Brazil’s oil exports also have been climbing with February exports at a record 1.63 mbpd. Last week, the U.S. Energy Information Administration reported the ninth-straight weekly increase in production with 8.2 million barrels last week, which brought the total inventory to 528.4 million barrels. “It seems that the oil supply recovery is gathering momentum in the world oil market, stimulated by gradually rising prices as well as improvements in drilling efficiency and well productivity in North America”, said Opec.

“I don’t think that’s going to be a massive influence at this point in time and the main reason being that it is a small move and the risk trade is still on at this point”, said Mark Watkins, regional investment strategist at the Private Client Group at U.S. Bank in Park City, Utah.

The destinations for crude cargoes provide evidence of the oversupply, according to JBC Energy GmbH, an oil consultant based in Vienna. Also, sharp crude oil price movements in a short period of time determine inventory gains and losses for these companies. Combine this with any rumblings that OPEC may not extend cuts past May 25, and market sentiment remains extremely volatile despite a record number of long positions in the crude market.