Breaking the Habit of Sub $50 Crude

Author: Pam Corn   Date:

The last time the market hit $50 a barrel on WTI crude was back in early October of 2015. Today, crude reached $50 and hit a high of $50.21. As of 1:30 PM EST we are at $49.59 on crude, even on the day. This does not come as a surprise, since the API’s released on Tuesday showed a 2.9 million draw in crude, as well as a 189,000 barrel draw at Cushing. Yesterday the DOE’s solidified the API’s by showing a 4.2 million barrel draw in crude and a 649,000 barrel draw at Cushing. Diesel has been trading down all day, but strengthened around noon, possibly due to geopolitical tension overseas in Nigeria. It sits down $.0050 as of 1:30 PM EST, while gas is down $.0185, which could be due to a build in barrels for gas on both the API’s and DOE’s.

It took weeks for crude to finally cross $50, although it came close a number of times. What does this mean for prices moving forward? Obviously there will be traders and speculators who believe we will continue up, sitting somewhere around $50-$55 over the next month. Then, you have groups who do not believe in this rally. With prices on the rise, U.S. producers of shale oil are ready to ramp up production and possibly lock in the value of their crude by selling forward, which in turn should help drive prices back down. Citigroup stated that “the U.S. is littered with drilled wells that haven’t been activated and $50 oil makes doing so profitable, while prices at $60 are likely to spur fresh drilling. The recent price rally could release 400,000 barrels a day or more of new U.S. output.”

It is looking like we are in a bit of a pricing pickle moving forward. Bearish wise, there are still talks over global oversupply and higher prices causing an increase in production, which should drive prices back down. On the bullish side, there are supply disruptions, geopolitical events, and acts of God that could interrupt that.

Interesting news:

  1. Geopolitical tension strikes Nigeria as Nigerian militants attack the Escrados oil facility.
  2. Saudi Arabia has offered Asian refiners more oil after its supplies rose following the completion of scheduled maintenance programs.
  3. Looking at future meetings, the OPEC meeting is set for June 2nd and the Federal Reserve is set to meet over a 2 day period on June 14th– 15th.
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