Why Oil Prices Just Hit A 2015 High [Whiting Petroleum Corp, ConocoPhillips, Marathon Oil Corporation, Hess Corp.]

crudeoilEconMatters:  Oil hit 2015 high with WTI at $60.40 and Bent at $68.40 end of trading on Tuesday. Crude prices have now risen 50% in just over three months.

The overall oil market sentiment is very bullish as CNBC reported hedge funds and money managers raised bets on rising Brent prices to another record, data showed on Monday, pushing net long positions to their highest since official exchange records began in 2011.

Chart Source: nasdaq.com, May 5, 2015

Crude Oil Net Positions and Open Interests in Futures and Options 

Chart Source: Thomson Reuters, downloaded May 6, 2015 11:30am US CST

Domestic oil inventory has increase almost 21% to 490.90 million barrels as of last week from 406.70 million barrels in January when it hit an 80-year high.

The strength in oil is supported mostly by geopolitical news such as:

  1. Yemen conflict. Reuters reported on Wednesday, witnesses said planes from a Saudi Arabia-led coalition struck Yemeni towns overnight.
  2. In Libya, protests have stopped crude flow to the eastern port of Zueitina.
  3. Pentagon announced US Navy warships have begun escorting British commercial cargo vessels through the Strait of Hormuz after Iran seized a Marshall Islands-flagged vessel last week.

Oil bulls also zeroed in on the news that Saudi Arabia had raised its official selling prices for its Arab Light grade crude to the United States and Northwest Europe, which suggests some demand recovery.

In addition, the International Energy Agency (IEA) chief economist Fatih Birol said on Wednesday that global investment in upstream oil production this year is down around $100 billion, almost 20% lower than in 2014 with the biggest drop coming from the US, Canada and Brazil. That could suggest some supply discipline which, if combined with some demand recovery, could likely lead to an oil price recovery in 2017 time frame.

The bottom line is the fundamental supply and demand situation has not changed that significantly to warrant a 50% run-up in oil.  

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