A seasonal rise in US fuel demand has seen oil prices rise slightly, but the overall trend is still flat, despite OPEC countries agreeing to extend cuts in oil production.
The original OPEC deal, due to expire in June, has been extended until March 2018, cutting production by roughly 1.8m barrels to 32m barrels a day.
The start of what is known as the US ‘driving season’ – when demand for fuel rises as people visit families and friends over the summer – saw prices edge up, as confidence grew that stockpiles would start to fall.
West Texas Intermediate (WTI) crude briefly rose to more than $50 per barrel before falling back to $49.72, while Brent crude also benefited slightly, rising to $52.51 before dipping to $51.99.
US rigs coming on line
However, the rise is likely to be short-lived, with US drillers bringing rigs online for the 19th consecutive week, bringing the total number of operational rigs to 722 by May 26.
This is an increase of 25 rigs since April 28 – a level not seen since 2015.
US shale oil becomes viable to produce from around $50-$55 per barrel – and the rigs can be brought into action quickly. The more OPEC and Russia constrict supply, pushing oil prices up, the more US rigs will come online.
A long-term oil price forecast by Deloitte in March predicted the WTI price would hover around the $52 per barrel mark for the remainder of 2017, rising to $60 by 2020 and $70 by 2024.
“As OPEC has been working to reduce production, the North American market has been ramping up operations in an effort to make up for stagnant production levels in the previous two years,” says the report.
“Along with increased production, United States stockpiles have also been increasing. These stockpiles have maintained record levels since June 2016 at 1.2 billion barrels, and the latest numbers… continue to grow to historic highs. This will likely act as a damper on oil price growth, as production decreases from OPEC nations can be offset by drawing down on this massive reserve of oil.”