Nitesh Shah, Director, Research, WisdomTree looks at the bearish sentiment surrounding oil and why it is due an upward price correction.
“Oil markets have been in a bearish mood for months. In seven of the past eight weeks, US oil inventory has been higher than Bloomberg consensus survey results, contributing to the bearish sentiment. Even the closing of the Keystone Pipeline (which brings Canadian oil to the US) for two weeks has done little to spur prices upward. In this period of weak prices, US oil rig counts have been falling. Yet US oil production remains flat at peak levels.
“The US has been drawing on Drilled-but-uncompleted wells (DUCs), that were built at times of higher prices but capped off for future use, to keep production at this pace. However, this inventory of DUCs can not last forever. An era of weak prices is putting US shale producers under pressure. Chesapeake Energy, for example, put out a “going-concern” warning last week. Lower volumes of production could drive an upward price correction over time.”