Production & Demand
Oil rose to the highest it’s been since February 3rd following indications that U.S. crude oil production was finally cut from its most advanced level in over 30 years.
Output fell from 9.42 million barrels a day on March 20th to 9.39 million, a decline of 36,000 barrels, which is the largest decline in such a short period of time since January 1983. Production companies reduced the amount of their active, domestic rigs to the fewest since March of 2011 as well.
The drop in production is expected to continue as the decrease in drilling remains.
Based on diminished production, West Texas Intermediate rose 5.2% to $50.09 a barrel and Brent Crude climbed 3.6% to $57.10 a barrel. Trading for both commodities was 14% over the last 100 days’ average.
Mounting Supply
As production falls, supplies will continue to climb. It will take some time for the decline to catch up with stockpiles. Crude oil supplies gained 4.2 million barrels last week, the largest addition to supply in one week since August of 1982.
Supply in Cushing, Oklahoma, an oil storage hub that calls itself “the pipeline crossroads of the world,” jumped 2.63 million barrels to a record 58.9 million.
As refineries transition from winter fuels to optimizing gasoline production, they’re operating at an average of 89.4 capacity, a jump of 0.4% ahead of last week.
The expectation is that demand will exceed supply in the second half of the year as crude inventories continue to fall.
Oil futures improved further as the dollar lost some strength and commodities saw higher volume. The strength of the dollar is tied to job creation and new hires, so as March saw 189,000 new jobs versus the projection of 225,000, the dollar lost some of its appeal.
Nuclear Challenges Oil
While oil is making small gains, it’s far from out of the woods. Energy investors are waiting with bated breath to hear the results of the nuclear talks between the U.S. and Iran.
If a compromise can be found, it will likely result in international sanctions on Iran being lifted and an already saturated global market being inundated with Iranian oil.
The talks, which involve the U.S., Iran, and five other world powers overran their March 31st deadline to agree on details for Tehran’s nuclear program. The updated deadline is June 30th and will hopefully be the final deadline.
