Thursday, February 26, 2015
US crude oil inventories show no signs of decline despite the slump in the operational rig count.
- In the short term, the oil price will be kept low by technical and financial factors.
- Any impact from announced investment and jobs cuts is unlikely to be felt this year.
- The US supply glut will take time to work through, delaying upward price pressures.
- Meanwhile, oil markets will stay more than usually volatile and sensitive to market rumours and reports.
Since hitting its lowest in almost six years on January 13, the Brent crude price has rebounded by 28.3% amid a sharp rise in volatility. This rebound has been driven mainly by traders covering short positions and by an oil market contango, in which future prices are higher than spot prices, making it profitable to buy oil now and sell it forward. The increase in crude stocks at Cushing, Oklahoma - the largest US oil storage facility - testifies to this trend.
The United States, with its shale oil boom, is the pivotal factor for future developments. Latest government data (October 2014) showed production still rising, and since then inventories have continued to hit new highs. Announcements of investment and jobs cuts by many oil companies do not appear to have been implemented so far, while the number of active US rigs is down, suggesting that fewer rigs are being more productive.
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