Oil keeps tanking

Just when oil after having entered the bear market last month, revived a few places, it got shot once again last week, having slid over 4 percent in just two days. The drilling activity in the US has refused to die. If anything, the US drilling activities have gathered pace over the past two months, limiting any upside that was on the cards after the Opec production freeze deal.

It is even more astonishing that the prices have continued the slide even after hints that Opec may want to include the outsider such as, Libya and Nigeria to the production freeze deal. Experts have opined that the market is clearly in troubles and looks all set to face bigger losses in the days to come. The Opec deal has clearly failed to bring balance back in the market, and the likely continuation of it till March 2018 seems in jeopardy.

Several Opec members are also set to meet the non-Opec oil producer Russia to discuss the oil market situation, which signals enough panic amongst the Opec ranks. Libya and Nigeria too have been invited to join talks, but are less likely to commit to any production cuts, given the turmoil they are going through for one reason or another.

The US oil rig count has now shown an increase for 24 of the last 25 weeks, and now stands at the highest level since April 2015. The US Department of Energy has reported a marked rise in production that reversed all the gains of the previous week. That said, there are still some bullish voices in the market, which see the prices to have already bottomed out, signaling the recent increase in long positions in the future market.

And it is not just the US shale production alone that is responsible for the continuous slide. The American neighbour Canada has seen an unnoticed rise in production and is expected to witness an ever bigger jump in production by 2018. The expected increase by some estimate is going to account for more than one-third of the total Opec production cut. Should that happen, that could be very damaging to all the Opec’s efforts.

The Canadian production costs have come down significantly over the last two years, and the market is well hedged at around $45 a barrel, enough to take any massive slide in international prices. “In the short term, oil prices may remain under pressure because of the U.S. glut in supplies. But the medium term is looking much better because I expect market rebalancing will kick in by late 2017 or early 2018,” quoted Bloomberg, the director of Commtrendz Risk Management. From what it appears, there is no coming back for oil prices in the short-term and bears look likely to stay for a long time.