Crude oil prices are slightly higher in early U.S. trading after declining strongly yesterday. The oil complex appears to have put in a short-term top in early May after rising consistently since the middle of March. "The worst is over" trading sentiment has lost some of its upside momentum as U.S. production has not declined strongly even as U.S. rigs deployed to the oil sector have declined by about 59% since peaking on Oct. 10. In fact total U.S. crude oil production is about 311,000 bpd above where it was when rigs peaked on Oct. 10.
Also, the market consensus is projecting a rollover of OPEC’s market share strategy when they meet next week (June 5). The comments from the main players within OPEC seem to be already forming a consensus to continue to keep production at high levels as the Saudi Arabian led group continues to try to impact the flow of non-OPEC crude oil production…in particular U.S. shale.
OPEC is a lot more relaxed as oil prices have increased off of their $42 per barrel low (spot WTI) hit on March 18. Since then price are higher by about $16 per barrel, or 38% as of this writing. Certainly, prices are still well-off of their highs from back in June of last year but the market is sending a message to OPEC that the oil complex may be slowly starting to rebalance.
It is not a slam dunk in my opinion as to whether the market is truly rebalancing or the uptrend has been nothing other than a perception rally as to what the fundamentals may be down the road. There is still a contingency of analysts and traders that believe the market is heading for a double dip.
Later today the weekly fundamental snapshots begin with the release of the API data followed by the more widely followed EIA data tomorrow morning. Total US and global inventories still remain at above normal levels. If OPEC is planning on continuing to overproduce record high inventory levels are going to be looming over the market for the unforeseeable future.