Oil prices have been uncharacteristically stable in recent weeks, but a few short and long-term catalysts promise to keep things interesting through the rest of 2020 and beyond. Most of those factors are pointing toward bullish signals in oil production and inventory data, as well as continued uncertainty around the future supply outlook – given an increasing number of shale bankruptcies and massive pullbacks in planned E&P investments.
Related ETFs: Energy Select Sector SPDR Fund (XLE), Invesco DB Oil Fund (DBO)
For the first time since spring, the last few weeks of movement in crude markets could be described as largely calm. It remains an uneasy calmness, however, as many are still waiting to see how sustainable the current pace of economic recovery from the COVID crash is.
While Americans are starting to drive again, miles driven remained down significantly from a year ago this past May. According to the Federal Highway Administration (FHWA), travel on all U.S. roads was 213.2 billion vehicle miles (VMT) — the latest month available — down 25.5% vs. May 2019. On the bright side, that was still a 27% rebound MoM.
While it appears likely that we’ve seen a bottom form in VMT, some measures of crude oil production and storage in the US continue to fall.
EIA data indicates that total field production of US crude remained at its lowest level since mid-June, 10.7 million barrels per day (bdp), in the week ended August 14, following a brief and short-lived recovery to the 11 million bpd mark.
Additionally, US crude inventories have now fallen for 4 weeks straight, contributing to a sustained downturn in the EIA’s measurement for days of supply. The 35.1 days of supply outstanding in the week ended August 14 represents a 16% drop from its 2020 peak, and the lowest level since mid-April.
Though the number of active oil rigs in the US rose by double digits for the first time since January last week, jumping up to 183, that came after bottoming out at 172, the lowest count since 2005, according to Baker Hughes data. This small rebound will provide only a bit of enthusiasm for drillers as, on a YoY basis, the number of active US oil rigs remains down more than 75%.
By the end of the year, Saudi Arabia sees crude demand making a full recovery: “Based on the average projections of various institutions, including OPEC, EIA and the IEA, it is estimated that the world will reach about 97% of pre-pandemic oil demand during the fourth quarter — which is a big recovery from the huge falls in April and May,” said Prince Abdulaziz bin Salman.
The Abu Dhabi National Oil Company (ADNOC) largely concurs with the Saudi assessment, predicting a robust return of oil demand, led by…