Crude looks tentative on new perch in mid-US$40s
US oil rig count is now down 80 per cent from its October 2014 peak
Crude futures touched year-to-date highs last month and held on to most of their gains entering May, despite a gathering of major Opec and non-Opec producers in the Qatari capital of Doha on April 17 failing to agree on a production freeze in a last-ditch bid to curb oversupply.
An open-ended oil workers’ strike in Kuwait, the start of which coincided with the Doha meeting, slashed the country’s crude output by 60 per cent to around 1.1 million barrels a day (b/d), reminding the markets that producers across the Middle East and North Africa remain particularly vulnerable to supply disruptions, either due to sabotage, terrorist activity or general unrest.
The Kuwaiti strike was in response to a raft of financial and economic reforms proposed by the government in March to cope with low oil prices, including oil sector wage cuts. The strike was the first at a national oil company in the Gulf region since 2011, but is hardly expected to be the last, given that governments across the region are tightening their fiscal belts.
Growing financial distress among producers such as Venezuela and Angola is shaping the view that involuntary output reductions may be coming down the pike
The Kuwait strike ended after three days, but it set crude on an upward trajectory, which saw Brent vault over US$48 a barrel on April 28 to a year-to-date high settle.
Supply disruptions continue to plague Nigeria, while growing financial distress among producers such as Venezuela and Angola is shaping the view that involuntary output reductions may be coming down the pike for some of the Opec producers who are starting to run out of money to pay their joint-venture partners and oil field service providers.
US crude production continues to slide. It slipped below the 9 million b/d mark in April, and is on course to average 8.6 million b/d in 2016, according to the latest projections by the US Energy Information Administration (EIA), down around 800,000 b/d from last year. The EIA also adjusted its 2017 output forecast lower to 8 million b/d.
Hedge funds and money managers on both sides of the Atlantic built major net long positions in the NYMEX light sweet and ICE Brent contracts through April, presumably buying into the narrative of steady global demand growth and declining non-Opec production rebalancing markets in the second half of this year.
The US Federal Reserve decided to hold interest rates steady at its April 27-28 meeting, which, though widely expected, weakened the greenback, also giving a leg up to crude prices.