Oil prices are rising, but how long it will last?
Oil price rose towards the highest level since June, as market players are waiting for the fresh weekly information on U.S. stockpiles of crude and refined products. The report will be released by the Energy Information Administration (EIA) later this day. Yesterday the American Petroleum Institute said that US oil inventories unexpectedly fell by 7.6 million barrels. This piece of information has become a trigger for the oil prices.
Brent rose by 7% last week after the OPEC announced the outline of a deal to cut the oil production. Now it continues its rally towards the new highs ($52 per barrel). How long will it last? Will the oil producers manage to hold the prices at their present rates?
Many analysts are skeptical about the success of Algiers pact. They believe that we will enter in other bearish zone as oil glut persists. Current increase in oil prices may spur the US incentives to introduce more drilling rigs. About their intentions we will know on Friday as Baker Hughes releases its rig count data.
Russia, the largest exporter outside OPEC, is reluctant to fulfill its promises to freeze the oil production. In spite of the tremendous fall in oil prices in 2014, Russian oil industry is still healthy, and the production is gaining momentum. Another large oil producer Kasakh Kashagan is also willing to get its piece of cake from the oil market. Regularly enough we hear announcements about the discoveries of the new oil deposit (for example, today we got a short note about 6 billion barrels discovered under Arctic waters).
So, here comes a logical question. How this rising supply could actually put up prices? For me, it’s a brain teaser. With a persistent oil glut, it is easier to believe in the failure of the agreement on the freeze of oil production, rather than wait for another period of price hikes.