Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Is Rising U.S. Drilling About To Send Crude Oil Toppling?

Published 2017-03-10, 06:08 a/m
Updated 2017-05-14, 06:45 a/m

Key Points:

  • U.S. crude oil production and drilling activity increases.
  • OPEC agreement on production caps starts to falter.
  • The $50.00 handle likely to be the key battleground in the weeks ahead.

This week could potentially be a harbinger of what is coming for energy markets as world crude oil prices crashed below the $50.00 a barrel mark for the first time since December. Much of the declines have been due to surprise inventory builds at Cushing as the U.S. market continues to produce significant levels of the commodity. Subsequently, there is renewed speculation that the current production levels could drive crude oil prices significantly lower in the wake of additional U.S. production activity.

The start of Friday morning’s session has been relatively rough for the commodity with West Texas Intermediate prices having swung both ways during the session. However, crude prices did manage to claw their way fractionally higher, to around the $49.50 a barrel mark by around midday. Regardless, the bearish mood remains pervasive over the market and the $50.00 handle could pose a bridge too far in the days ahead.

Monthly US Crude Oil Chart

Unfortunately, market confidence has been shaken by the decline and surprise U.S. inventory build given that prices had settled relatively comfortably above the $50.00 mark for some time. However, the market had largely disregarded the increased drilling activity that was seen to be ramping up over the past weeks and months. Domestic production activity has been on the rise for some time and many of the ongoing shale projects have been picked for expansion.

Subsequently, there is little reason to currently remain bullish for crude oil prices given the product overhang that is presently in storage. The latest EIA figures show current inventory figures falling around the 528 million barrel mark which represents a significant excess to be cleared through the supply chain, especially given the limited refining capacity and flat domestic demand.

Ultimately, the recent collapse back below the $50.00 handle doesn’t surprise many that have been sceptical over the recent OPEC production caps. The reality for the new oil order is one where rebalancing clearly still needs to complete. The recent OPEC agreement on production caps was never intended to be a long term solution to oversupply and the current U.S. production boon suggests that it has done little but cede further market share. Subsequently, expect the cracks to start appearing within OPEC over the medium term as certain members find the current arrangement relatively unpalatable and ineffective.

Latest comments

Trying to be polite. Finding it difficult... The OPEC conglomerate agree to volume freezes and reduction... I have to ask the question... Knowing the US is not part of OPEC... Why do they continue to ramp up production and drilling all the while knowing they are lowering the prices for the entire world.. I just the they are greedy... I try to find the light at the end of the tunnel but there isn't any. It appears the me them at everything they get there greedy mitts on they ruin. Including countries and cultures.... Stop the drilling and price manipulations... Its is obvious what you are doing... Pissed off investor.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.