Oil prices continued to rally over the last week, with the West Texas Intermediate (WTI) rising more than 3 per cent to $US35.46 ($52.95) per barrel.

A drop in the US rig count to a record low of 301 rigs last week, or about 69 per cent down from this time last year, raised hopes that US oil production would fall further as global oil consumption continues to recover.

The fall in the rig count, which highlights the activity levels of the drilling sector, is the lowest its been since 1940.

There might be some substance to this belief with the US Energy Information Administration (EIA) reporting that domestic crude production fell from 13 million barrels per day (MMbbl/d) to 11.4MMbbl/d last week.

Meanwhile, the broader Brent crude benchmark is currently at $US37.96 per barrel.

However, analysts polled by Reuters believe that oil is unlikely to exceed $US40 per barrel this year, with the WTI expected to average $US32.78 while the Brent averages $US37.58 per barrel.

And there are many heads to the hydra that could keep oil from returning to the heady days — at least this year.

US petroleum inventories for the week ending May 22 increased by almost 8 million barrels to 534 million barrels as a fleet of tankers sent from Saudi Arabia at the height of the volume war between OPEC and Russia started to offload their crude.

While this might be a one off occurrence, data indicates that OPEC’s compliance with the 9.7MMbbl/d production cut it agreed with Russia is only about 74 per cent, with Nigeria and Iraq failing to comply with the cuts.

Stocks of refined products have also continued to increase, rising a further 7 million barrels to a record 880 million barrels as the rate of recovery for fuel consumption slows.

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Meanwhile, renewed tensions between the US and China over the latter’s new security laws for Hong Kong have sparked concerns that it would impact on any global economic recovery.

While oil prices at current levels might be enough for cheaper onshore production to turn a profit, the offshore sector is in the doldrums with many new projects being put on hold.