Oil futures advanced for a seventh consecutive day on Friday, as shale explorers broke the longest stretch of uninterrupted growth in three decades.
Despite the July 4th Independence Day holiday that will keep US trading subdued this week, traders are actively eyeing the USA oil inventories with the hope that signs of reduced supply will finally buoy prices. The production cut led to a temporary rally in crude prices up to US$55 in January with hopes that it would rebalance supply and demand. It is however in OPEC's interest to wrap up its oil victory in price, volume produced and sold to give the desired revenue and bull market share.
Last week's two-rig decline in a weekly count of USA rigs by Baker Hughes came after a record 23-straight weeks of increases.
USA shale drillers have boosted production at a rapid pace, undercutting OPEC's efforts to pare a global supply glut. "It gets tougher to use up all that crude as refinery utilization starts to ease off as we move past the peak of summer driving season".
Crude began the first week of July marginally higher than Friday's close, as a drop in U.S. oil rig count last week - the first since January - lent support to expectations that the country's tight oil production growth might be starting to stall due to lower prices. Several large market capitalisation integrated oil producers such as BP and Shell are down in the region of 10pc year to date, while smaller exploration and production-focused companies have declined by up to 60pc.
Cailin Birch, an analyst at the Economist Intelligence Unit, agrees: "The nine-month extension should be enough to bring the market more into balance, provided that the rate of US production growth does begin to slow in early 2018 and compliance by both OPEC and non-OPEC participants remains strong". Lower rig counts reported Friday by oilfield services company Baker Hughes pushed oil prices closer to the psychological threshold of $50 per barrel.
The price of WTI is down $6.29 (12.02 percent) this year, and the average price is $49.95. Last week, crude hit a 10 - month low as rises in output revived concerns about global oversupply. So if demand rises over time and Opec sticks to its deal in the longer term, we see a forward price anchor for WTI in the $45 to $50/bbl range and a backwardated structure of $3 to $7/bbl. Robust appetite from Japanese and South Korean buyers could help soak up excess supplies. The drop was by two rigs and the government data indicated that crude production dropped in in April, which is the first in this year.
Mohammed bin Salman, now Crown Prince, has been promoting a program to diversify Saudi Arabia away from its dependence on crude. "All the same, it is still too early to see this as any kind of trend reversal". Venezuela provided the US with about 271 million barrels of oil in 2016.