Crude Economics
Resurgent Shale Threatens to Drag Oil Prices Down Again

Stop us if this sounds familiar: a global glut has sent oil prices sliding over the past two months, and, though a drop in gasoline stockpiles has helped inspire a minor rebound recently, the outlook is starting to look bearish again. Bloomberg reports:

[Money managers] increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings of Exxon Mobil Corp. and Chevron Corp. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week.

“The rise in supplies will add more downward pressure,” said Michael Corcelli, chief investment officer at Alexander Alternative Capital LLC, a Miami-based hedge fund. “It will be a long time before we can drain the excess.” […]

“The flow is solidly bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It reflects a recognition that the market is, at least for the time being, oversupplied.”

There’s so much oil sloshing around the global market these days that, barring some major supply disruption, there’s little reason to expect a significant bounce out of the $40-$50 price range that crude has been living in for most of 2016. Demand is still tepid, and there’s little reason to expect Europe or China to pick up that slack anytime soon. On the supply side, American shale is just now getting its feet under it after two years of struggling to cope with shrinking profit margins.

Bloomberg compiled a list of price outlooks from a wide number of analysts and found that the median prediction for next year’s average price is $57 per barrel. There won’t be a steep climb up to that level, and, as any of those analysts will tell you, there’s still a great deal of uncertainty. Perhaps the biggest wild card still in play in the oil game is U.S. fracking. All signs point to a return to the boom days of a few years back.

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