For over a year, the market has been focused on rising oil stockpiles in the US – if inventory keeps increasing, there is still too much supply, so oil should cost less. Crude oil fell below $29 in mid-February. Since that time, oil has rallied 30%. Yes, OPEC might “freeze” production at their already-high levels and China has enacted more stimulus, but it seems as if traders are looking out further. US oil production has been falling since mid-2015 and is expected to fall by 600,000 barrels per day this year and more in 2017. The rig count has fallen 76% from its high and is down 27% this year alone. Oil production companies have cut their drilling budgets by about 70% since the highs as they try to shore up their balance sheets. If the market balances as expected by the end of the year, investors will once again be forced to find the right price to incentivize the marginal barrel.
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