West Texas Intermediate (WTI) crude oil rose above the $60 level even on Tuesday, being driven by some positive hints about the global demand, albeit traders keep in mind, that bearish pressure of previous session proved to be much stronger, making this increase only a correction.
Let’s take a closer look on the market. What is the real strength on the demand side? US economy is recovering from the poor first quarter, summer demand is widely expected to ask for more fuel as well as China is showing somewhat higher demand, albeit not that strong as wished by most of oil-producing countries.
But is it enough? Isn’t the bullish correction during last months more driven by some changes on the producers’ side? We can see a slowdown of oil rigs in the United States, we can see loads of tankers still staying on the seas as companies chose to keep their stockpiles untouched, until the prices rise further. Moreover, Canadian companies halted their production now due to fires, but this is expected to be only short-term. Focus has to be turned back to the US economy, where the shale revolution proved not to be that stellar as previously expected.
We can see, that even though the demand is rising slowly again, the more serious impact comes from lower production or only halted due to actual prices, which does not seem appropriate for more companies. Canadian producers are said by Reuters sources that after the WTI crude oil climbs above $65 a barrel, they could spur another selloff to hedge themselves against the actual drop.
On the other side, supply side is still very strong, mostly from the United States, Russia and OPEC countries, not affected much by Yemen or Libya crisis. As the Energy Information Administration (EIA) data showed this month, global petroleum oversupply has more than doubled to a record 2.6 million barrels a day since the end of Q2 2014.
Moreover, North Dakota production has eased only slightly from its previous record high according to the Department of Mineral Resources (DMR) report. The north-US state output reached 1.17 million bpd in April, only mildly down from the peak in December 2014, when the output rose to 1.23 million bpds (what is still more than 200,000 bpd higher from the beginning of 2014).
According to the entire data published, oil traders should be cautious, when even taking into account that dollar could support bearish pressure on commodities as well due to tightening speculation, and monitor any possible oversupply-driven hints that could renew the strong bearish trend on the oil market.
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