For the first time in nearly seven months the oil price rose to $50 a barrel as global supply cuts and disruptions continue to tighten the market. The price has almost doubled since hitting 12-year lows in January.
Oil prices have rallied in recent weeks after a string of production outages - total disruptions in May amount to nearly 4 mbd. Oil consumption is rising and stocks are starting to draw. In addition, US output is falling – production is down 0.8 mbd year-on-year.
• Wildfires in Canada have shut down around 1 mbd of oil production in May
• Militant activity has reduced output in Nigeria to 1.4 mbd (-40%)
• Unrest in Libya – loss of production
• Venezuela is on the brink of economic collapseData: EIA STEO
At the same time oil demand is increasing. Gasoline use in the US is 500,000 bpd above last year, to a level last seen in 2007. Oil demand is also growing in India, China and Russia – where combined demand in the first quarter this year was >1 mbd higher than a year ago.Data: IEA and EIA
US crude stocks showed a sharp decline last week, indicating that spare supply is dwindling.
We expect to see the price continue to rise as the market rebalances and stock draws continue. US production will gradually return as prices rise, but it will take time.