The recent rally in oil prices has run out of steam. Brent crude has slid from over $60 a barrel back to under $54 in the past fortnight; WTI, the US benchmark, has hit a new six-year low under $43.
Supply increases in the US and signs that oil producers’ cartel Opec remains reluctant to cut production to bolster prices were behind the latest move.
What the commentators said
Opec’s hope that America’s oil boom will be over by the end of the year looks like “wishful thinking”, said The Economist. The least profitable shale drillers have gone bust, “but others are ploughing ahead”. Labour and equipment have got cheaper, financing remains abundant, and production has become much more efficient.
So although the rig count has fallen, “increased productivity at the remaining ones more than makes up the difference”. The rally in prices has been a tailwind, noted Liam Denning in The Wall Street Journal. Explorers have been able to hedge future production at higher prices, and sell shares to ease the strain on balance sheets.
The upshot is that the oil traders who have marked prices up in the past few weeks have jumped the gun. American production may not ease until later this year, and ample stockpiles should cushion any short-term supply squeezes.
It will also take several months for the increase in global demand, a result of the price declines since last summer, to filter through, noted The Economist. Don’t expect a sustainable rebound in oil prices for some time.