The market sentiment is changing with tightening supply and an improving global economic outlook. The price is also driven by the rush to close short positions as traders reposition themselves.
US oil rigs are cut to the lowest level since 2009. The total count is now 392, down from a high of 1609 in October 2014. US oil production has not shown a corresponding decline, but after growing from 5.5 million barrels per day (mbd) in 2011 to 9.6 mbd in mid-2015, production is down by more than 500,000 barrels per day. Still, it is only for the past four weeks that there has been a year-on-year decline in production.
Prices are below economic viability for many operators, and we may see an accelerated decline in US oil production in the coming months as the tight credit market is making it difficult for shale producers to refinance upcoming debt.
Prices will continue to rise as contracting non-OPEC supply and healthy demand growth leads to a tightening balance, but it will take time to clear the large global oversupply and very high stocks. Data from Baker Hughes/EIA