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The bottom is in for oil prices

The bottom is in for oil prices thumbnail

Traders think the decline in oil prices is over.

A report from Bloomberg News on Sunday said traders had pulled their bets that oil prices would fall further at the “fastest pace on record,” citing data from the Commodity Futures Trading Commission, or CFTC.

And according to John Kilduff at Again Capital, who spoke to Bloomberg last week, “The falling rig count and the reduction we’re starting to see in output shows that the bottom has in fact been installed … A lot of people are throwing in the towel.”

Last week, oil prices rose for the sixth straight week, and West Texas Intermediate crude oil was trading near $57 a barrel Sunday night, up from its low of $43 hit back in March.

Earlier this year, strategists at Citi called for oil prices to drop as low as $20 a barrel given that the glut of global supply, which has been blamed for the sharp decline in oil prices seen since the summer, showed no signs of letting up.

This call, of course, has still been half right.

Last week, data from the Energy Information Administration showed that crude oil inventories again rose to at least an 80-year high. The US has over 480 million barrels of oil in its inventory. Oil prices, however, haven’t reacted to this data much in recent weeks.

crude oilDr. Ed’s BlogOil inventories are basically off the chart.

The continued rise in oil inventories comes as the number of active US oil rigs continues to plunge.

Data from oil driller Baker Hughes released Friday showed that last week the number of US oil rigs in use fell to 734, the lowest total since October 2010.

Since hitting a peak of 1,609 rigs last October, the number of US oil rigs is down more than 55%. Baker Hughes said back in January that during past oil downturns, the number of rigs had declined by 40% to 60%.

oil rig count 4 24 15Business Insider/Andy Kiersz

And while oil production hasn’t yet started to really tail off, there are signs the market might be headed toward the end of a phase in which it was flooded with supply.

Here’s the past year of oil prices:

fredgraph (16)

Business Insider

7 Comments on "The bottom is in for oil prices"

  1. shortonoil on Mon, 27th Apr 2015 8:09 am 

    There will probably be a short term reprieve in the price decline; oil may reach into the $60 range in 2016. But the long term trend is down:

    At present price levels at least a third of the world’s producers are losing money producing oil. This is a situation that is not going to go away, but is going to become increasing more critical as time progresses. Production cost are rising, and consumer affordability is falling. The quantity of petroleum that can be extracted profitably is on a fast track path to zero!

  2. keith on Mon, 27th Apr 2015 9:14 am 

    When global governments hammer out a deal to curtail Climate change, then we know the game is up and we our past peak.

  3. Davy on Mon, 27th Apr 2015 9:37 am 

    Keith, the odds of a global deal are so far out as to be dead in the water. The world is going into a period of cold, proxy, and hot wars instead of cooperation. There is little if any cooperation except in the unfettered exploitation of the many by the few and the final destructions of what remains of the global commons IOW our ecosystem and climate.

    I see no hopium out of this end game. You are so right about if a climate agreement materialized. The outcome would be peak fossil fuels but also the end of BAU, globalism, and complex society.

  4. Perk Earl on Mon, 27th Apr 2015 1:20 pm 

    With oil price stabilizing and rising somewhat, will that slow the rig count descent?

    And, how much higher must price go to start the rig count back up again?

  5. shortonoil on Mon, 27th Apr 2015 4:05 pm 

    “And, how much higher must price go to start the rig count back up again?”

    Shale development started its assent in 2007 when WTI hit $66/ barrel. It is likely, however, because of the very high debt burden that the industry is now carrying, that prices would now have to be much higher to start another drilling boom. $66 is likely to stimulate completion of wells that have been left uncompleted, of which there is now some 1,500. To restart shale drilling on a level as seen over the last few years would probably require at least $90 oil. $90 oil is not going to happen. Shale was an anomaly of disinvestment into low grade resources that occurred because of Central Bank intervention into the market. The chances of it being repeated are next to nothing. It would require $100’s of billions on the part of refineries to begin large scale processing of LTO; and that is not going to happen either!

  6. Dr. Don on Mon, 27th Apr 2015 9:39 pm 

    Short on oil
    Your first comment made zero sense. All the things you listed that you feel will contribute to a long-term downtrend will have the opposite effect. You didn’t’t really believe the calls for $20 did you? $10? We will see $80 before $20.

  7. Dredd on Tue, 28th Apr 2015 1:04 pm 

    higher poison prices … lower poison prices … higher poison prices …

    Is anyone expecting the price to change the poison so that it stops killing everything?

    Choose your trances carefully.

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