Oil prices dipped below $50 late last week, tumbling since Wednesday when the US Energy Information Administration announced an unexpected gasoline build in its weekly update on inventory levels. More downward pressure came on Friday, April 21, when Baker Hughes said that the oil-rig count rose by five to 688.
On that same Friday, the Financial Times wrote (subscription required) the following:
But concerns are mounting that a ramp up in US shale production will undermine a push by Opec and other producers such as Russia to reduce excess stockpiles and bring to a close the worst price crash in a generation.
One Wall Street trader said: “There are lots of things at play. US production is surging, there are concerns about demand in Asia, hedge funds are reducing their bets on a higher oil price. It’s all coinciding and putting pressure on prices.”
While there is plenty of news to suggest that oil prices will remain soft, I continue to expect that oil prices will generally be bound by $50 to $60 per barrel. I anticipate that in late May OPEC will agree to extend its production cuts for another six months. Furthermore, more oil is expected to be consumed as driving seasons kicks into high gear over the next few months. With continued production cuts and increased consumption, prices should be supported at $50 per barrel.