Oil Gains Ground As Bullish Mood PrevailsOil continues its upside move as traders believe that oil production cuts are improving the supply/demand balance.
Oil Video 18.06.20.
OPEC+ Technical Meeting Did Not Recommend Additional Production Cuts
While the main OPEC+ meeting took place earlier in June, OPEC+ members have just met to oversee the implementation of the deal.
According to reports, the main topic of the meeting was compliance by previous laggards like Iraq and Nigeria. At this point, it is believed that countries which have previously failed to satisfy the deal’s terms are increasing their production cuts.
It’s not surprising that there are no news about further tactics on the production cut front. OPEC+ members have recently agreed to extend existing production cuts for July and will meet later to evaluate whether the situation is getting better or the oil market needs more support.
Brent oil prices are already above $40 per barrel while WTI oil prices are close to this level so oil producers do not need to hurry with additional decisions as the pricing situation has stabilized. The current oil price levels are still low but the general situation is much better compared to the times when WTI May contract went into the negative territory.
Will U.S. Shale Output Return With Higher Oil Prices?
Yesterday, we discussed a surprising EIA Weekly Petroleum Status report. While the oil inventory part of the report did not bring any major news, the production part surprised the market and provided additional support to WTI oil prices.
According to EIA, U.S. domestic oil production decreased by 600,000 barrels per day (bpd) in just one week, and the current level of the U.S. domestic oil production is 10.5 million bpd.
A recent Reuters report suggests that the U.S. domestic oil production may be close to its bottom as U.S. shale producers may restore as much as 500,000 bpd of oil production by the end of this month.
The reason for this is that oil prices have risen high enough for some wells to be profitable. Shale oil wells can be switched on and off in a short timeframe and with low costs compared to conventional production so the oil price upside might help restore some of the lost production.
However, it remains to be seen whether WTI oil prices at $40 per barrel will indeed lead to a flood of new production. In my opinion, the biggest risk for WTI oil prices is the potential second wave of coronavirus in the U.S. rather than an increase of domestic oil production.
For a look at all of today’s economic events, check out our economic calendar.