- Oil prices climbed above $54 per barrel this week as market fundamentals appeared to show continued improvement.20 According to the U.S. Energy Information Administration’s Weekly Petroleum Status Report, stockpiles of U.S. gasoline experienced a greater-than-expected weekly decline of more than 4 million barrels.21 After sitting well above their 5-year range for nearly all of 2016, gasoline stockpiles moved squarely into the middle of the longer-term average this week.21
- At the same time, reports emerged this week that OPEC is likely to continue its agreement with non-member nations to curb oil production through the entirety of 2018.22 The agreement was originally slated to end in March 2018; however, leaders of OPEC have been encouraged by high compliance rates, and Saudi Arabia, in particular, has been vocal about the need to further reduce inventories.22,23
- At earlier points in the current cycle, investors might have expected smaller domestic producers to boost their output, taking advantage of recent price increases. Based on recent data, however, the U.S. oil rig count appears to have peaked in August 2017.24 Since then, the number of rigs in the U.S. has declined by 31 – a small figure, but a decline that highlights the broader trend through the second half of this year.24
- Because rig count is typically viewed as a proxy for activity within the sector, it could potentially become harder for U.S. producers to quickly ramp up supply in the coming months.
- Wall Street analysts have taken note of recent fundamental improvements underlying the oil market. In late October, a group of analysts polled by The Wall Street Journal raised their oil-price forecasts for the first time in six months.25
1 The Wall Street Journal, http://on.wsj.com/2yslhMI.
2 The Wall Street Journal, http://on.wsj.com/2zZsujM.
3 U.S. Federal Reserve, http://bit.ly/2ilhF4q.
4 Bureau of Labor Statistics, http://bit.ly/2iYbHWM.
5 ICE Bank of America Merrill Lynch U.S. High Yield Master II Index.
6 Federal Reserve Bank of St. Louis, http://bit.ly/2oMWaP2.
7 Bureau of Economic Analysis, http://bit.ly/1DqcVBJ
8 Federal Reserve Bank of St. Louis, http://bit.ly/292Tgue.
9 ICE Bank of America Merrill Lynch U.S. High Yield CCC & Lower Rated Index.
10 ICE Bank of America Merrill Lynch U.S. High Yield B Rated Index.
11 ICE Bank of America Merrill Lynch U.S. High Yield BB Rated Index.
12 ICE Bank of America Merrill Lynch U.S. High Yield Energy Index.
13 Credit Suisse Leveraged Loan Index.
14 Credit Suisse Leveraged Loan Index (energy component).
15 Credit Suisse Leveraged Loan Index (utility component).
16 Bureau of Economic Analysis, http://bit.ly/1cR0IcA.
17 Bureau of Economic Analysis, http://bit.ly/1DqcVBJ.
18 Bloomberg, based on CME data.
19 The Conference Board, http://bit.ly/1eu7yyH.
20 Bloomberg West Texas Cushing Crude Oil Spot Price, as of November 3, 2017.
21 U.S. Energy Information Administration, http://bit.ly/2ueQorn.
22 Reuters, http://reut.rs/2za9fFc.
23 Bloomberg, https://bloom.bg/2l3XhFN.
24 Baker Hughes North America Rig Count, http://bit.ly/1BMeq7M.
25 The Wall Street Journal, http://on.wsj.com/2z4Wv2q.
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