Oil drops below $50 a barrel on oversupply
For the first time in 3 months, WTI has dropped below $50 a barrel after crude inventories were shown rising by 8.2 million barrels last week. Inventory levels are now at their highest levels since the US government began recording data in 1982.
Why this matters: while oil prices have come back to life, the oil supply glut is not over by a long shot. For weeks now, US stockpiles have been rising. And this is largely because capital expenditure for US-based shale oil has rebounded after the shakeout caused by oil’s plunge to the $30 range. Rig counts are now back to pre-crisis levels, with the latest Baker Hughes rig count showing 756 rigs, up 267 from a year prior.
This is important as even ExxonMobil is trading investment in long-term projects that will yield oil for decades for shale drilling that can be switched on or off much more quickly. Shale producers have effectively become the swing producer, supplanting OPEC, which is now trying to restrict output to maintain prices. Eventually the excess shale supply will cause prices to swoon again. And OPEC countries will not have the leverage to change that.