No consensus about a stabilization of Oil prices

In January 2015, media multiplied press articles warning that oil prices would likely fall to $30 a barrel soon. Our staff had written a month before that it might indeed drop to $40. We were quite right since the low point of WTI has been $43.59 on January 29, 2015. Since then, the price has quickly risen to $53, namely a 23% 12-day increase. Does it mean oil prices have stabilized? One may remember that once again the rule that says it is more appropriate to “buy the news” is true. While almost everyone spoke about the continuing fall in the oil prices, the exact opposite occurred. However, there are reasons for this.

The announcement of the closure, temporarily or permanently, of a record number of oil – shale gas drilling points in the US has triggered the initial momentum for such rebound. If oil reserves are still very high and demand remains generally lower than supply, the demand has however been revised upwards in anticipation. Production is measured using data that often don’t correspond to the immediate situation but to the situation that was true a few weeks or months ago, whereas the termination or stoppage of production sites can be recorded immediately, this way giving instantly a more precise estimate of the impact on future production.

This gap could thus partly explain the strong rebound in oil prices. In addition to the geopolitical context that plays a significant role in the price variations, stabilization will depend essentially on the consequences the sudden fall in oil prices has caused to US production. If difficulties seem to accumulate for the US energy sector, the swiftness with which the sector has decided to cut its personnel and/or its production could still exert a downward pressure, at least in the medium term.