" any increase in oil prices will tend to increase oil production from US shale and elsewhere. This in turn will tend to extend the glut"
Right on schedule, US oil production rose again last month. Now its up over 9 million bbls/day.
US oil production has gone up 500,000 bbls a day just since October---which not so coincidentally is when KSA and OPEC announced their plan to voluntarily cut their production, causing oil prices to start going up.
In the USA Higher oil prices = higher oil production.
Beware of the numbers! Yes, in the Weekly petroleum reports from IEA, it appears that US production increased by 500'000bbls per day since october. But:
- What is the share of this increase coming from Offshore plays? It was expected to increase and it is not related to short price fluctuations.
- Also, offshore plays have a lot of variation months to months. Sept 2016 production was the lowest of 2016.
- Using the monthly petroleum report, the increase is 200'000 bbls since october.
- Weekly reports are estimates which can be off by 300'000 bbls... up or down.
Tight oil production may increase this year. But how much? Remember they are recovering, some plays (eagle ford, bakken) are still decreasing. This is not the 2013-2014 situation, we won't see 700k-1 millions bbls/d increase.
Your definition of a glut is right. As long as inventories increase, we are in a glut. Either because of sluggish demand or high production. But how bad is the glut? Well, it is a bit simplified, but if we take the crude inventories y/y since 2014, we find
26.02.2014: 362.4 millions bbls
25.02.2015: 434.1 millions bbls (yeah, the 68 millions build led to the plunge of prices)
24.02.2016: 507.6 millions bbls (whoops, 73 millions increase, and another plunge)
23.02.2017: 518.7 millions bbls (ok, 10 millions increase... much slower)
Okay, last weeks saw continous increase of inventories. But this is also usual in this time of the year. Refineries operates at lower rates, inventory build for the high season (even if it's historically high). The important thing is the variations year on year, not the level. So, the market seems quite balanced... which is why the price don't really move in any direction. And there is nothing on the horizon that tend to give a direction.