Oil rally gaining steam but there might be storms on the horizon
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Oil might be poised to make gains as the expiry of the West Texas Intermediate futures contract for June delivery passed without the feared drop into negative territory.
The WTI spot price is currently trading at $US33.61 ($51) per barrel, nearly 22 per cent up from its closing price a week ago, while the benchmark Brent Crude is up 15.9 per cent to $US36.07 per barrel.
Reuters reported that the Dated Brent’s six-week calendar spread had shrunk to a contango of less than 70c per barrel from more than $6 per barrel in the first week of April, indicating that the physical market has become better balanced.
The rise in crude prices can also be attributed to a confluence of factors including the sharp drop in crude exports by OPEC+, a substantial fall in US crude inventories and an increase in refinery consumption.
OPEC, Russia and their allies have pushed ahead with their 9.7-million-barrel-per-day production cut, which has certainly helped oil price sentiment.
US oil production has also dropped, with the Energy Information Administration (EIA) reporting that total oil output fell by 100,000 barrels a day to 11.5 million barrels a day last week.
It added that US crude inventories fell by 5 million barrels for the week ended May 15, its second fall in the same number of weeks.
This has eased concerns about the lack of storage at Cushing, Oklahoma, with HIS Markit energy markets analyst Marshall Steeves telling MarketWatch that oil storage is not filling up as quickly as expected.
The EIA also reported that US refinery inputs increased during the week ending May 15 to 12.9 million barrels per day, up 500,000 barrels per day (bdp) from the previous week.
PetroChina has also flagged that its biggest refinery, the 410,000bpd facility in Dalian, will resume operations in late June as China’s industrial activity recovers to normal levels.
However, Oilprice.com warned that the oil price rally appeared to have ignored downside risks.
It noted that the high Chinese refinery input might be creating products beyond organic growth in China while about 50 million barrels of Saudi crude was on its way to the US where it could upset the drawdown in supplies.
The rising oil price has prompted White Bark Energy (ASX:WBE) to increase oil production from its Wizard Lake project in Canada, though it has elected not to exercise its right of first refusal to purchase its partner Point Loma Resources’ sale of 97.5 per cent of its 40 per cent interest in the project.
The company previously produced an average of 200 barrels of oil and 1.6 million cubic feet of gas per day with operating costs kept at less than $C10 ($10.9) per barrel.
Meanwhile, 88 Energy (ASX:88E) says integration of early results from its Charlie-1 appraisal well has lent further support to its belief that its original preferred drilling location may be oil bearing.
It noted that compared to the Charlie-1 location, this area was in a more optimal maturity window for the generation of oil.
Testing of liquid hydrocarbons from Charlie-1 has also confirmed that there is condensate gas rather than light oil.