March 2016

Oil Rally Reaching Limit

Oil prices have rallied by about 50 percent from their February lows, topping $40 per barrel. But the rally could be reaching its limits, at least temporarily, as persistent oversupply and the prospect of new shale production caps any potential price increase.

U.S. oil production has steadily lost ground over the past two quarters, with production falling more than a half million barrels per day since hitting a peak at nearly 9.7 million barrels per day (mb/d) in April 2015. American oil companies have gutted their budgets and have put off drilling plans, with many projecting absolute declines in 2016.

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Oil Won’t Stage A Serious Rebound Until…

Oil prices have shown signs of life over the past few weeks, as production declines in the U.S. raise expectations that the market is starting to adjust. As a result, Brent crude recently surpassed $40 per barrel for the first time in months.

A growing list of companies are capitulating, announcing production cuts for 2016. Continental Resources, for example, could see output fall by 10 percent. A range of other companies have made similar announcements in recent weeks. The energy world has been speculating about declines from U.S. shale, and the declines are finally starting to show up in the data.

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