Can crude oil find stability as it looks poised to retest $60 a barrel? Oil prices are rising again as the dollar weakens a bit, and signs that U.S. Shale output is falling continues to support prices.
There are reports of more Saudi-Led air-strikes in Yemen ahead of what is supposed to be a 5-day cease fire, and that is keeping the market nervous. The market is also eying the meeting between Secretary of State John Kerry and Russian President Vladimir Putin to see if they can make progress in support for the Iranian nuclear deal and to see if they can agree on how to handle the conflict in Syria. Kerry wants Syrian President Assad out but he is a close ally of Putin.
Yet, what is probably the biggest question for this market is how quickly U.S. production will come back from declines and when will U.S. rig counts level off. Oil bears are talking about the fact that the rig counts in the Permian basin ended its decline and actually added a rig. Overall, the U.S. rig count looks like it will continue to fall and it appears U.S. oil output will continue to fall. The Energy Information Administration in a monthly report showed that the United States lost about 1% of oil production from its shale formations this month, and it's going to fall more in the coming months. Oil production from shale will fall 54,227 barrels per day this month, and it will fall by another 86,000 barrels in June to a five-month low of 5.56 million.
The market will look with interest to tonight's American Petroleum Institute reports to see if U.S. crude supply will continue to decline and for signs that the U.S. supply glut will continue to ease. Demand still looks strong as global economic easing is keeping demand stronger than expected.
On a positive front, the U.S. has awarded Shell conditional approval to drill for oil in the arctic. Bloomberg News reported that Royal Dutch Shell Plc won U.S. approval to resume oil exploration this year off Alaska's Arctic coast after regulators imposed safety conditions meant to avoid the mishaps that plagued the company's effort three years ago. The Interior Department on Monday endorsed Shell's exploration plan for the warm-weather drilling season in the Chukchi Sea, if it can get permits from state and other regulators and comply with endangered species rules. Shell wants to resume exploration after halting operations in 2012 when it was fined for air pollution violations and when a drilling rig ran aground.
Oil products seem to be rebounding! Look to buy breaks and put on bullish option strategies.