Oil prices surged this week with New York futures closing on Wednesday at $56.39 and London’s Brent closing at $60.32. Several reports were released in the last few days suggesting that US oil production has peaked, at least for the time being, were behind the increase. New York futures, which are more sensitive to US shale oil news, closed up nearly $6 a barrel from the lows they touched last Friday. The spread between the US and London futures is now down to $3.93 after touching $13 a barrel in early March.
The weekly stocks’ report showed US crude inventories climbing by only 1.3 million barrels last week, most of which went into the invenntory at Cushing, Okla. which rose by 1.2 million. The EIA said in its weekly report that US oil production dropped by 20,000 b/d last week. Independent analysts have been noting for some time, however, that the EIA’s current production numbers, which are only estimates, have been running well ahead of North Dakota and Texas’s numbers which, while delayed by a couple of months, are based on actual production.
North Dakota reported this week that its oil production dropped in January and February and that rigs are still being taken out of service with still lower rig counts yet to come. Drillers do not want to sell off the initial surge of oil that comes from newly opened wells at today’s prices and which constitutes a goodly share of the well’s ultimate yield. North Dakota also reports that there are now 900 wells that have been drilled but are waiting to be fracked because of low prices. IHS Energy estimates that there are also some 1,400 newly drilled wells awaiting fracking in South Texas. The EIA sees US production starting to fall by May, if it has not done so already, but still expects production to rebound next winter when prices move higher.
The International Energy Agency in Paris reported that the demand for oil has been slowly rising since last July and now expects that global demand will increase by 1 million b/d during 2015. The Agency, however, is still concerned about the supply/demand balance during the rest of the year. US shale oil may have been priced out of the market for a while, but there is still the possibility that Iran will get out from under the sanctions, that OPEC production will continue to increase, and that China’s economy will continue to sag. The situation is thought to be “murkier” so that the markets may not be balanced by a small decline in US shale oil production.
Posturing in Tehran and in the US Congress continues over the nuclear agreement that is due to be concluded in June. President Obama agreed to let the US Senate take a vote on any agreement before Congressional imposed US sanctions are lifted, but the Iranians are saying as loudly as they can that the sanctions must be lifted immediately after an agreement is signed. Despite much optimism, the situation clearly is still up in the air. In the meantime the Iranians are running around acting as if they will be back in the market with more oil next summer – something that many doubt can technically happen. Iranian negotiators have been to Beijing, trying to entice the Chinese into becoming the major financer of their next oil boom, no longer trusting the US and EU. They have also asked their fellow members of OPEC to cut production so that Iran can resume its rightful share of the global oil market.
The situations in Syria, Iraq, and Yemen continue to deteriorate. Despite coalition bombing, ISIL continues on the offensive in Anbar province in Iraq and around Damascus. Baghdad is seeking to assure the international oil companies expanding Iraqi oil production in southern Iraq that all is well and that they are safe from attacks. The humanitarian situation in the region grows worse every day.
