Crazy, But That’s How It Goes

Oil prices are experiencing some downward pressure today, as statistics are showing low production levels for OPEC. As we start to see the bears come out of the woods, you may start to wonder why prices have not seen a significant drop for quite some time now. Why is this, you ask?

Since the November OPEC/non-OPEC meeting about production cuts, most participants have shown that they are in fact adhering to their commitments to cut production.  In turn, crude oil has gained support above $50, but has not come very close to $60. With that being said, are producers able to turn a profit with crude at the current $52 per barrel?

As mentioned in our blog yesterday, “Baker Hughes announced an increase of 14 rigs last week, all of which were oil. Active number of rigs online is now 583, the most since October of 2015.” Despite ramped-up drilling activity, BP (British Petroleum Co.) says that $60 crude is needed for it to turn a profit.  

For many energy companies, $55 crude seems to be the center of the see-saw, which separates profitability from loss.

What’s Bearish?

  • Bloomberg expects to see a build on crude for 5th week in a row (See API stats tomorrow)
  • Rig count is up (Baker Hughes)
  • U.S. production is up

  • Crude supplies are expected to show a rise of 2.5 million barrels, the Bloomberg survey showed.
    • Stockpiles are at 494.8 million barrels, the highest seasonal level in more than three decades, according to weekly data collected by the EIA since 1982.

 

What’s Bullish?

  • Russia is ahead of schedule in regards to production cuts
  • OPEC + non-OPEC nations are on pace with production cuts
  • OPEC cut production by to 80 % of what it promised to cut in January
    • Despite not being on pace, this is seen as bullish news coming from OPEC

As of 12:37 p.m. ET, Heating Oil is down approximately 2 cents, while RBOB is down a little over 3 cents. WTI crude just snuck below $52, currently sitting at $51.96 per barrel. 

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