29 February, AtoZForex, Lagos – The recent rebound in oil prices has been fueling speculation that the commodity prices may have finally bottomed out. BRENT and West Texas Intermediate (WTI) are both trading higher this week, following strong gains last week.
Could oil prices have bottomed out?
With speculation of a potential deal between OPEC and non-OPEC members looming, prices may actually be on a sustainable recovery rout. However, some analysts are still wary of becoming too positive. Richard Gorry, director of JBC Energy Asia said:
“There is still a lot of downside risk … but the U.S. crude market seems to have passed the worst point and crude runs should start creeping higher, taking pressure off inventory levels,” “The latest data on U.S. production is also supportive as it indicates that the low prices are finally having an impact,” he said.
Shale oil production drops
There has been a drop in the number of rigs which drilled for oil, for a 10th straight week by U.S producers, putting it at its lowest level since December 2009. And it’s estimated to result in an output fall of 600,000 barrels per day (bpd) this year.
Another looming risk which could further deepen the oil glut is the threat of US shale producers, who have clarified that they could potentially reenter the markets with full force when oil prices hit $40.
Continental Resources Inc. led by billionaire Harold Hamm has clarified that they are set to boost capital spending once prices accelerate to the mid-$40s range, potentially boosting its 2017 production by more than 10 percent, chief financial official John Hart said last week.
Also, Whiting Petroleum Corp, the biggest producer in North Dakota’s Bakken formation, has clarified that it will stop fracking new wells by the end of March, but would “consider completing some of these wells” if oil prices went back to the $40 – $45 per barrel range, according to Chairman and CEO Jim Volker.
Clamor for oil output freeze
Less wealthy OPEC members like Nigeria and Ecuador have been clamoring for a solution to the oil glut, as prices sit near 13-year lows. Having been one of the hardest hit countries by the fall in oil prices, Nigeria’s President Muhammadu Buhari is scheduled to meet Saudi Arabia’s King Salman, with analysts speculating that Africa’s number one oil producer’s president will offer his support for a freeze in output.
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