Oil price rebound continues despite boost in oil supply

U.S. oil rig count has been falling for 19 consecutive weeks, according to Baker Hughes Inc. (TexasRaiser/Creative Commons)

By Lucy Ren

Oil prices rose slightly on Wednesday despite a government report showing a spike in oil supply in the U.S. in the most recent week.

U.S. crude inventory rose by 5.3 million barrels to 489 million in the week ended April 17, marking the highest level of supply in at least the last 80 years, according to the Energy Information Administration report. Oil inventory has risen 28 percent since January,

Analysts differ on the long-term outlook for oil prices.

Prices have been rebounding by close to 30 percent since March 17, when they closed at a six-year low of $43.46 a barrel.

Dave Nadig, chief investment officer of the analytical website ETF.com, said he does not foresee any significant upward pressure on prices in the next three to four years.

“Essentially what we are in is an oversupply alignment of oil,” he said. “If anything, supply is going to keep prices down.”

But analysts are keeping a close watch on shrinking investment in oil production in response to the drastic decline in oil prices. Since June 2014, West Texas Intermediate crude oil futures have been cut by more than half, closing Wednesday at $56.26 per barrel.

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The supply spree has been contradicted by the consistent decline in oil rigs for 19 consecutive weeks, according to U.S. rig counts conducted by Baker Hughes Inc., an oilfield services company that provides weekly counts of U.S. and Canadian drilling activity. The number of oil-drilling machines fell to 734 from 760, the lowest level since November 2010.

Nadig opined that traditional measurements of oil rigs like the Baker Hughes rig count no longer apply. “The rigs that are running are running at rates they’ve never been run at before,” he said, “and drilling efficiency skyrocketed in the last couple of years.”

However, Phil Flynn, an analyst at the Price Futures Group in Chicago, sees more momentum in the recent oil price rebound.

“In the last two months, companies have announced billions of dollars of capital spending cuts,” Flynn said. He expects “bigger holdback on investments” in the oil industry, which will further tighten the supply and drive up prices “not just today but in years to come.”

Photo at top: U.S. oil rig count has been falling for 19 consecutive weeks, according to Baker Hughes Inc. (TexasRaiser/Creative Commons)