Here Comes The Boom! Oil Prices Will Climb From 3 Million Barrel Drop In Inventory
Wednesday was a huge day for the oil industry, actually this whole week is turning out to be huge. U.S. oil prices jumped nearly 8% on Wednesday following an unexpected massive drop in crude inventories. Just when everybody thought it was game over, we’re moving in the right direction.
Crude inventories fell by a staggering 3.3 million barrels late last week. This is huge news as analysts were actually predicting a gain of 3 million some barrels. This right here folks is a 6 million barrel swing in supply. This what we’ve been waiting for, the massive drawdown is happening. This is big, big news out of the oilfield, and it’s the final piece of the puzzle that will eventually propel the industry back into production creating new oil jobs. This obviously isn’t going to happen overnight. The price dropped slowly, it will also take some time to climb back up. The important thing is, the right things are happening.
In our recent articles and discussions, we’ve mentioned the final thing that needs to be done is to draw down the supply after we get production numbers under control. Well, it’s here and nobody expected it this fast, not even the industry analysts.
The other big news coming out of the oilfield today is that Iran is actually in favor of putting a freeze on production. Just yesterday an agreement was reached between several OPEC members to freeze production as long as the other big players agreed, one of them being Iran who was said to be most likely uncooperative.
In an unexpected meeting on Wednesday Iranian Oil Minister Bijan Zanganeh met counterparts from Venezuela, Iraq and Qatar in Tehran for a couple hour long discussion about how they all agreed freezing production should be the first step towards stabilizing the market.
Once news broke that Iran was onboard with the deal, the prices of Brent Crude Oil shot up almost $3 a barrel. It jumped $2.70 (8.39%) to $34.88 a barrel, and was as high as almost $35 a barrel at one point.
Traders also cited options expiry in U.S. crude for the rebound. The March contract settled 5.58 percent higher, or $1.62, at $30.66 a barrel, and last traded up 7.95 percent, or $2.31, at $31.35 a barrel.
“I’m pricing between $35 and $45 for Brent by summer, as we still have a daily surplus of up to 1.7 million barrels of oil to contend with,” said Phil Davis, an independent crude trader at PSW Investments.
“But I don’t see the panic move down below $30 happening again,” Davis said. “That’s just untenable.”
Crude prices have fallen from highs above $100 a barrel with little resistance for most of the past 20 months, thanks to near-record output by the Organization of the Petroleum Exporting Countries and other major drillers such as Russia.
But after hitting 2003 lows beneath $30 last week, prices reversed course, surging about 12 percent on Friday alone after the United Arab Emirates said OPEC was ready to cooperate in bringing production down.
Nobody could predict this massive swing in inventory, especially this fast. There are major changes taking place right now with the overall numbers of supply and demand. The changes are infact in favor of the oil industry. Things are coming together mighty fast all of a sudden. We’ve told you guys this is what will happen all along. Nobody wanted to believe we were right, everybody said we were ahead of the game. We expect things to be looking a lot better by summer.
When we talk about the industry, we don’t fool around guys, as we are active in the industry ourselves and so are our family members. One industry, one family. Share this post with your oilfield family, this is biggest news week we’ve had in a year.
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