The busy summer travel season is at our doorstep, with that comes stronger fuel demand.
Back in March I shared the fact that Americans drove a record 3.05 trillion miles on U.S. highways in January 2015 for the 12-month period, with even more expected this year. Now the International Air Transport Association (IATA) revealed that international passenger traffic in March rose 7% from the same time a year ago. Except for Africa, every region around the globe recorded year-over-year increases in air traffic.
Last week, West Texas Intermediate (WTI) crude oil prices reached a 2015 high, rising above $60 before cooling to just below that. It marked the eighth straight week of gains.
Investment banking advisory firm Evercore makes the case that the recent oil recovery is closely following the average trajectory of six previous cycles between 1986 and 2009. Although no one can predict the future with full certainty, this is indeed constructive for prices as well as the industry.
Because oil remains in oversupply, the recent rally owes a lot to currency moves. The U.S. dollar, which has weighed heavily on commodities for around nine months, declined to its lowest point since mid-January. We might be seeing a dollar reset, which should finally give oil—not to mention gold, copper and other important commodities—much-needed breathing room.
The oil rig count continued to drop in April and is now at a five-year low. According to Baker Hughes, 976 rigs were still operating at the end of the month, down 11% from 1,100 in March and 47% from 1,835 in April 2014. Eleven closed last week alone. This spectacular plunge has had the obvious effect of curbing output and helping oil begin its recovery from a low of $44 per barrel in January. Production appears to have peaked in mid-March at 9.42 million barrels per day and is now showing signs of rolling over.
As I’ve mentioned before, price reversals have historically occurred between six and nine months following a drop in the rig count. The number of rigs operating peaked in October and oil started to bottom in January.
Even though domestic oil inventories still stand at near-record levels—according to the Department of Energy’s weekly report, they’re at their highest level for this time of year in at least 80 years—the rate at which storage facilities are being filled is beginning to slow.
For the first time since November 2014, stockpiles declined at Cushing, Oklahoma, the nation’s largest storage facility and the pricing point for WTI.