Friday, April 24, 2015

A Further Rise In Crude Oil Prices Facing Headwinds Near Term

Oil rig count has fallen dramatically in the U.S., yet oil supply is continuing to pile up nearly unabated. The market is of the belief that this decline in rig count will ultimately put a halt to the supply growth.

From The Blog of HORAN Capital Advisors

Rex Tillerson, CEO of Exxon Mobil (XOM), recently spoke at the IHS CeraWeek conference in Houston, TX. Tillerson believes oil prices are likely to remain at a lower level for the next several years. Additionally, ConocoPhillips (COP) CEO noted the shale fracking industry has a large number of wells that will be completed once oil prices do rise. This alone is likely to place a cap on the rise in the price of oil.

Lastly, as the below chart clearly shows, in spite of the lower level of oil prices, Saudi Arabia is determined to keep the supply of oil flowing as evidenced by the country's rig count growth (green line.) Their goal is to force fracking companies out of business in an effort to eliminate this swing supply.

From The Blog of HORAN Capital Advisors

With WTI recently rebounding from the mid $40 per bbl price to mid $50's level, further oil price increases could face some headwinds in spite of the decline in global rig count (red line.) In the EIA Petroleum Status Report released on Wednesday, crude oil inventories rose 5.3 million barrels. As noted by Econoday,
"The string of inventory builds continues for oil, up a fat 5.3 million barrels in the April 17 week to 489.0 million which is the 14th straight build and yet another 80-year high [emphasis added]. The build is due to yet another rise in oil imports and also in part to an easing of refinery demand for oil. But refineries are still busy, operating at 91.2 percent of capacity."

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