US Oil Rig Count Surges To 2-Year High - Will Shale Kill The Oil Rally Again?

Tyler Durden's picture

For the 14th straight week, US oil rig counts rose (by 11 to 683). This is the highest since April 2015.

and leads US crude production to its highest level since Aug 2015.

 

The question is, as OilPrice.com's Nick Cunningham asks, will Shale kill off the recent oil price rally again?

WTI has rallied more than 11 percent over the past month, raising hopes from oil bulls that maybe, just maybe, the price gains are here to stay. Oil had dipped in February and March on record high levels of oil sitting in U.S. storage, but by April, the market is starting to look tighter.

The oil market bust is closing in on the three-year mark, and there are growing signs that things could finally be moving in the right direction.

Despite the record high levels of crude oil storage in the U.S., inventories are falling pretty much everywhere else. South Africa, the Caribbean, Nigeria, and Iran are all reporting lower inventory figures, although the reasons vary. Iran cleared out its fleet of floating storage, which had built up during years of sanctions that prevented the Islamic Republic from exporting to its full potential. That backlog of oil has now been worked through and Iran could have trouble lifting exports. In fact, Iran’s exports have been flat since last summer.

Europe also has high levels of oil and refined products sitting in storage, but total levels are down from 2016. And like the U.S., the past few months have been quiet ones for refiners. That suggests that inventories should start seeing some more meaningful declines in the months ahead as refineries ramp up.

(Click to enlarge)

According to FGE, and reported on by Reuters, total product stocks across the U.S., the Amsterdam-Rotterdam-Antwerp region, plus Singapore and Japan, declined by a combined 6.5 million barrels – a sign of market tightening. Storage is still exceptionally high, but converging down towards long-run averages. Outside the U.S., accurate data is hard to come by, so these snippets offer some clues into broader market trends.

"Across the first quarter of the year, crude stocks built by much less than they did in the first quarter of last year even though refinery maintenance globally was much heavier," Energy Aspects analyst Richard Mallinson told Reuters.

According to SEB, even the record high levels of U.S. inventories are not as bad as they seem. While the buildup is in part due to rising production, they are also the result of refining maintenance season. Lower refining runs means fewer barrels bought up by refiners, which leads to higher storage. But that is, of course, a seasonal trend. With the driving season rapidly approaching, U.S. inventories are expected to decline.

American motorists should start to feel the effects of a tightening market. Gasoline prices across the U.S. jumped by an average of 11 cents per gallon this month, sitting at $2.42 per gallon. That is now the highest national average since September 2015.

Market sentiment is starting to turn bullish. For the week ending on April 4, hedge funds and other money managers stepped up their net-long positioning, the first increase in six weeks, reflecting a general feeling that the recent dip into the $40s was temporary. Related: Is The Oil Price Rally Running Out Of Steam?

Looking forward, there are more reasons to be bullish. Demand is on the rise. Saudi Arabia just announced that it had cut deeper in March, taking output down to 9.9 million barrels per day. The OPEC extension seems to be on track. Also, driving season and the end of refining maintenance should start to drain U.S. inventories, which is arguably the most important metric right now holding back more gains in oil prices. “People have been picking up on the bullish indicators in the market ahead of the seasonal draw in crude stocks,” David Wech, an analyst at JBC Energy GmbH, told Bloomberg.

But there is also the chance that the more than 10 percent rally in oil prices over the past month starts to fizzle – once again disappointing traders who are betting on rising prices. Although bullish bets on WTI futures increased recently, the positioning is more balanced than it has been for most of this year, reducing the speculative pressure on crude prices on the upside.

Then there is the comeback of U.S. shale to consider. Production is up to 9.2 mb/d and rising, a gain of nearly 700,000 bpd from last summer.

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NoWayJose's picture

The oil markets are "RIG'ed"

Hitlery_4_Dictator's picture

Not with war on the ajenda it won't. Sorry consumers. 

Raffie's picture

Funny with ALL the oil that I'm paying $2.58 for reg gas. The price is going up. Prem gas was $2.85

Whatever, greed is just that.

FreeShitter's picture

As soon as Rex got on board,,,it starting going up.

Joe Sichs Pach's picture

WTF is Nick from oilprice looking at suggesting "the market looks tighter"?

NoDebt's picture

Remember the good old days when we were paying $100 for a barrel of oil?  Ah, good times.  Good times.  

adr's picture

Remember when oil sold for $100 and gas was below $3? Good times.

adr's picture

So far has any of the bearish stats for oil affected the price?

Answer, no.

More oil than 2015 when the price headed to $27 and we've got $54 on deck. We might even crack the $60 mark that will foo the algos into filling the gap to $100.

Computers don't know what storage and demand is. They only see a chart that has a line running above $100 for years and a gap that needs filled to get back to that mark.

aloha_snakbar's picture
Will Shake Kill The Oil Rally Again

Depends... chocolate, strawberry or vanilla?

Secret Weapon's picture

Second day in a row with a misspled headline. (Yes, it was intentional).

Pasadena Phil's picture

I don't know how we become energy independent without more oil rigs and more production. This really isn't that complicated. We are headed for energy independence and this is what it looks like. Maybe those who can't handle it should hide in the cellar with the women and children.

papa song's picture

I hate shake in my hash oil.

cashtoash's picture

I wish my car could run on crude oil instead of stupid gasoline which does not decline that much

sinbad2's picture

Because oil prices are low, the oil companies just increase the price they charge to refine and distribute.

That's why big oil is moving into shale, they can charge what they like. If China tried to sell cheap gasoline in the US, the Government would accuse them of dumping, and tax the fuel so it was more expensive than fuel refined in the US.

There is no way out, you're fucked.

ANiceDepolorable's picture

Unlike in previous times, right now the US has a huge domestic supply of recoverable crude, with rigs that can be brought on-line when the price point is sufficient to turn a profit, and turned back off when the price dips.  Previously, domestic supply was rather inelastic and total supply was at the mercy of OPEC. 

Salsa Verde's picture

Hopefully Shale will kill OPEC.

Ink Pusher's picture

Unless you can lower your extraction and transport costs to 15 or 20% below all of OPEC........ forget it.

sinbad2's picture

OPEC is an American invention, to control global oil prices. But don't worry, the Russians will kill it.

Ink Pusher's picture

The rig count will continue to rise until the next tanker jam, same play as the last time. Tankers will once again become offshore storage facilities while we get to witness the glut reappear in real time. The analysts are all still snortin' the same shit the last time they all mised the call.

Truth Eater's picture

The price of oil must go up to pay for all the extra storage containers that need to be built due to this expensive oil glut.

yngso's picture

The driving season is seasonal too. September may become very interesting...

sinbad2's picture

As long as the US doesn't try to export thev oil it will be fine. The oil companies dig it up refine it and sell it to American consumers, at the $70 a barrel price. The oil companies still make a profit, and consumers aren't smart enough to notice.