Oil majors have weathered a market rout that saw crude sink to a 12-year low in February by lowering capital expenditure, renegotiating drilling contracts, slashing jobs and deferring projects.
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While reduced production and growing demand have help cut into the global supply glut, Daffenbach warned that oil prices could eventually spike if the trends continue.
While the recovery to $50 is good news for oil companies like Chevron and countries like Nigeria that depend on oil revenue, prices are still painfully low.
Crude futures topped $50 a barrel on Thursday, as production disruptions in Canada contribute to a drop in United States crude inventories. “This is not a renaissance”.
Rise in the US dollar also stifled oil prices from advancing.
The oil cartel’s most recent meeting in Qatar in April ended without agreement to freeze output at current levels due to Saudi Arabia’s insistence that Iran be part of the agreement.
Brent oil futures surged to $50 and above after a record seven months. Oil exports also jumped 600,000 barrels per day to 2 million barrels per day.
In global oil markets, Brent prices have been supported by a series of supply disruptions in Nigeria, where militants have been staging a wave of attacks on oil pipelines, cutting the country’s output to the lowest in more than two decades.
Canada is the biggest supplier to the USA and wildfires in the western provinces have knocked out about a million barrels a day.
As oil is pegged to the dollar, a strong greenback doesn’t bode well for traders using different currencies. But analysts warn the rebound could be temporary if the spike in prices leads to increased oil production.
The average price for Brent oil was $37.45 per barrel in January-May 2016, that is, $19.42 per barrel less than in the same period of 2015.
Of course, that doesn’t mean oil prices are going to skyrocket back to triple-digit territory.
“There is a feeling we’ll have one more drop, but it will be short-term and there will be full-blown activity at $60” a barrel, Irani said.
“But because the dollar has gone up so much, trying to break above the fifty-dollar mark will be even more hard now”.
Despite recent gains, however, record US and global oil storage levels continue to hold prices well below levels seen two years ago.
And then there’s the OPEC factor.
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Currently, the market expectations are related to the upcoming OPEC meeting in Vienna on June 2, which will discuss the issues of changing and distributing the production quotas among the OPEC members.
