HIGHER OIL TO STAY ? Firstly, a key driver of the latest surge in crude has been a sharp drop in the number of operational oil rigs in the U.S.
The latest data from energy consultancy Baker Hughes shows that the U.S. rig count has fallen for the last five consecutive weeks to be at its lowest point since the second week of May 2017. That means one thing: U.S. oil production will not grow as fast as many pundits were predicting earlier this year. There are in fact signs that the rig count could even decline further, despite the recent recovery in oil.
Secondly, the latest results from the U.S. energy patch show that shale oil companies are not as profitable as many analysts were claiming, and breakeven prices for shale oil are not as low as many claimed.
For the second quarter 2017, many U.S. shale oil companies reported losses, despite WTI averaging US$48 per barrel and claims that the average breakeven price for each the major shale oil plays was under US$40 per barrel. This has triggered a major revision of breakeven prices with many analysts concluding that they now average around US$50 per barrel.
That concurs with oil magnate and CEO of Continental Resources Inc. (NYSE:CLR)Harold Hamm?s views that WTI needs to be above US$50 for the shale oil industry to be sustainable. In spite of Continental being one of the largest and lowest-cost operators in the Bakken shale, it reported a second-quarter loss of US$1.8 million.
Finally, new crises have erupted in that cauldron of geopolitical tensions the Middle East.