Is The Oil Price Rally Sustainable

Crude oil prices continue to battle to remain above the $50 price level but find the resistance hard to breach. Although WTI and Brent oil did move above the $50 price last week it as only for a brief period of time. Traders remain focused on Thursday’s Producers Meeting.
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Crossing the $50 mark breaks down a psychological barrier for traders who have worried about oil prices in recent months as the price of crude has dipped at times below $30 a barrel. But analysts warn the rebound could be temporary if the spike in prices leads to increased oil production.

Prices have risen in part due to a slowdown in production in Canada where a wildfire looms near oil production facilities as well disruptions to the supply from Nigeria as well as in Venezuela, where an economic crisis has led to massive power cuts. Meanwhile, oil demand has been stronger than expected, especially in the United States. According to the U.S. Energy Information Administration, fuel demand in the U.S. rose to 9.6 million barrels per day last week.

Meanwhile Argentina aims to eliminate its need for crude imports while increasing domestic oil output to 653,000 barrels per day (bpd) in 2025, a 23 percent increase from 2015, an official from the Energy Ministry said last week. The South American country is working to cover its energy needs after becoming a net importer three years ago due to falling crude and gas output amid a low investment environment. To achieve that, it needs to boost local output to cut crude imports and start reducing costly purchases of liquefied natural gas (LNG) currently made through tenders on the open market and from neighboring Chile.

China’s crude oil purchases from Russia jumped 52.4% year on year to a record high in April, propelling it to the top spot for the second time in 2016 and displacing Saudi Arabia, but May purchases from the European supplier could slow because of higher flat prices, traders said.

Russia shipped 4.81 million mt, or 1.17 million b/d, of crude to China in April, about 36,910 b/d higher than the last peak of 1.14 million b/d recorded in December last year, according to data released by the General Administration of Customs Tuesday.

Stronger oil prices may actually be the one thing that can send prices sliding again. Sounds counter-intuitive? Actually, it’s not. Higher prices could encourage more producers to turn up output — particularly the more cost-sensitive U.S. shale producers — and present the world with another wave of oversupply.

The OPEC meeting is only a week away, but the chances of a positive result are as remote as ever. Rising oil prices, the heightened rivalry between Saudi Arabia and Iran, and Saudi Arabia’s willingness to go it alone will make a deal all but impossible. According to the IEA, Iran has managed to boost oil production to 3.56 million barrels per day in April, its highest level since November 2011. Oil exports also jumped 600,000 barrels per day to 2 million barrels per day. Importantly, Iran’s output now stands at pre-sanctions levels, a key threshold that the Iranian government says it needs to reach before it would consider any cooperation on production limits with OPEC. However, Iran thus far does not see it that way, insisting that it still has more ground to make up.

More importantly, is Saudi Arabia’s shift in attitude. In a once unthinkable development, Saudi Arabia is backing away from OPEC. The cartel’s largest, most important, and most influential member will leave the group rudderless. Countless obituaries have been written about OPEC since November 2014, but the new direction that the Saudi monarchy is heading in all but ensures diminished influence for the oil cartel.