So is the oil market turning for the better?
The past week has seen more confidence that oil prices have stopped sliding and are now around their bottoms.
But there are no signs prices will return soon to the $US100 a barrel level they were at in mid-2014.
So the great price depression continues and it is all linked in to forecast supplies of crude over the next two years.
At the moment they are all telling us that the oversupply will continue, but will closely improve.
There’s new talk of an OPEC meeting in April, a small fall in February output, and continuing confidence about the outlook that saw several key forecasters suggest last week that the worst could be close to over.
The growing confidence that the slide is ending was in evidence last Friday.
Brent, the global indicator oil marker, hit $US41 a barrel on Friday, while US oil benchmark, West Texas Intermediate, rose to $US39 a barrel — its highest level this year.
Oil prices have jumped by almost 50% since hitting a 13-year low near $US27 a barrel in January. That in turn has helped stop the slide in the prices of other commodities, helping then rebound, as well as the shares of energy and mining companies.
Prices retreated this week ahead of the Fed meeting and statement early tomorrow morning.
The International Energy Agency (IEA), the global energy watchdog, gave a big hint Friday that it saw oil prices around their lows. But the outlook is still gloomy.
“For prices there may be light at the end of what has been a long, dark tunnel,” the Paris-based group said in its monthly report. “It is clear that the current direction of travel is the correct one, although there is a long way to go."
Some of the stabilising in prices has flowed from claimed attempts by Saudi Arabia and Russia to produce a global freeze on output, while supply disruptions in Iraq and Nigeria have helped tighten the market.
But continuing rumours of a production limiting agreement are just that and with Iran determined not to allow its output to be restricted, there’s little real chance of any deal.
The IEA still expects global supplies to continue to outstrip demand until 2017, but the gap will slow now the slide in prices is having a bigger effect on US shale companies.
The IEA expects output from countries outside the Opec production cartel to drop by 750,000 barrels a day (b/d) this year, led by a fall in US shale output, compared with the estimate of 600,000 b/d.
The more bullish outlook from the IEA stands in marked contrast to other forecasters who believe the recovery in prices has come too soon and could delay the rebalancing of the market.
Goldman Sachs, one of the most bearish of commodity forecasts said on Friday an early rally in oil prices could prove “self defeating” as it would reverse the “nascent supply curtailments”.
But given all that, the market fundamentals are changing.
US crude oil production was steady at 9.078million barrels a day at the start of March – down 188,000 barrels a day from a year ago and forecast to fall by up to half a million barrels a day by the end of the year, according to the IEA.
The Baker Hughes weekly survey of US oil drilling rigs in use dropped to the lowest weekly level on record. The report said the total active US rig count fell 9 to 480 as of Friday.
The previous record low was at 488 rigs on April 23, 1999, according to Baker Hughes.
The Energy Information Administration (EIA) last Tuesday cut its 2016 and 2017 estimates for American crude-oil production and forecast prices for West Texas Intermediate crude.
It forecasts average US crude output of 8.67 million barrels a day for 2016, down from a prior estimate of 8.69 million.
For 2017, it sees output of 8.19 million barrels a day, down from a previous forecast of 8.46 million. WTI prices are seen at $US34.04 a barrel this year, down from a prior estimate of $US37.59, the EIA said. For 2017 it expects to see $US40.09 a barrel, down from a prior forecast of $US50.
The IEA projected that US oil output would fall by 530,000 barrels a day this year, while other suppliers like Brazil and Colombia would experience large losses.
The EIA also said that US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.9 million barrels from the previous week. At 521.9 million barrels, U.S. crude oil inventories “are at historically high levels for this time of year”.
That will have to start falling steadily, and US production dip decisively under 9 million barrels a day for traders to be really convinced that the worst is over. But watch for production from US shale companies – if the $US40 plus price is sustained, it is possible these companies will switch production back on. There are reports of hundreds of drilled but uncompleted wells in these areas (all they need is fracking, then connecting up to pipelines). IF that happens, prices will fall sharply and the nascent rally will be over.
