While oil prices rebounded on a more supportive American Petroleum Institute supply report, the energy industry continues to go through more cruel cuts. Oil prices hit a three-month low on fears that the global oil glut will only get larger as the U.S. budget deal includes selling oil from the Strategic Petroleum Reserve and fears that we will see another massive build in U.S. oil inventories.
While the API did report a 4.1 million barrel build in overall crude supply, they also reported a draw in Cushing, Oklahoma that would indicate that U.S. and Canadian oil output is continuing to falter. On top of that, they also reported a large 2.6 million barrel drop in distillate supply and a drop of 700,000 barrel drop in gasoline supply.
Cheap OPEC oil is finding its way to U.S. shores as our refiners can squeeze more profit because of the discounts the OPEC cartel is offering.
Yet low prices during this bust continues to devastate global energy companies. Oil-sands production is getting hit by a sandstorm and the high cost of production is making it almost impossible to continue to produce that oil. This hit home once again as Royal Dutch Shell (L:RDSa) said it will walk away from its 80,000 barrel-a-day Carmen Creek oil-sands project and comes just weeks after they walked away from a major Alaska project that led to the Obama Administration canceling auctions for other offshore projects.
Yet it isn’t just Shell that is walking away from Canada. France’s Total (N:TOT) and Norway’s Statoil (N:STO) has also walked away from projects. More cruel cuts will be coming.
Fed day today and that could provide a dip to buy! We could also see oil rally after the EIA report as traders are looking for a bearish report after the API report but it might not be as bearish as they thought! Put on your long term bullish strategies!