Thanks to greater demand, a drop in U.S. stockpiles, and OPEC’s pledge to cut production, crude oil has settled over the $50 mark. This is the first time that crude has settled above this mark since June.
Traders are anticipating prices to increase even more if Hurricane Matthew disrupts inventories in the southeastern U.S. Oil prices have risen steadily since last week after reaching an agreement among the members of Organization of the Petroleum Exporting Countries (OPEC) to cut production.
The benchmark for oil, West Texas Intermediate, reached $50.44 per barrel in New York. This prolonged a rally that began on September 28, the same day OPEC reached their deal to slash production by up to 750,000 barrels each day in an attempt to lower the global oil glut and increase prices. Since OPEC announced the deal, prices have soared by over 10 percent, though this can’t be confirmed until OPEC’s November meeting in Vienna.
Prices have also been supported by a steady decline in U.S. crude stockpiles and an upward demand for product. Futures have improved by 1.2 percent. According to the Energy Department’s report on Wednesday, commercial inventories dropped by nearly 3 million barrels last week, marking the fifth successive week in decline. Crude stockpiles have dropped by over 40 million barrels since the last peak back in April, falling below 500 million barrels last week for the first time since the start of 2016.
But it isn’t just the United States that have experience a drop in inventory. Genscape Inc. reports that stockpiles at the largest oil-trading hub in Europe have also decreased since record highs in August.
Meanwhile, the demand for U.S. petroleum products is growing. On average, American drivers ate up 9.3 million barrels each day across the last four weeks which is a 3 percent increase from the amount consumed for this time period in 2015.
In summer 2014, oil prices surpassed $100 a barrel before sinking to the low of roughly $26 in February. Prices have more than doubled since bottoming out as several U.S. drillers have gone out of business, lowered production, or filed for bankruptcy. The Energy Department reports that the output for the U.S. has dropped by around 700,000 barrels per day since the start of the year.
Still, the recovery in prices has directed many companies back to shale oil fields. According to the Houston-based Baker Hughes, over 100 rigs have returned to operation since May when the rig count was at its current low of 400.
Now markets stand to face many unanswered questions including whether increased prices will inspire more drillers and other non-OPEC producers to ramp up output, counteracting the cuts previously made by OPEC. Goldman Sachs, the investment bank, recently predicted that more production and new supplies will lengthen the glut and prevent prices from going over $55 per barrel in the future.
“The main issue is the big decline in North American storage,” said Tim Pickering, chief investment officer of Calgary’s Auspice Capital Advisors Ltd. “The OPEC agreement is just spin to help support the market.”