Oil prices are on the rise after Baker Hughes reported the U.S. oil-rig count fell by 7 to 797 rigs. After recent increases that might not seem like alit, a lot of oil traders now know that to keep U.S. shale production rising you must keep on drilling. Steep shale decline rates means you can’t let up or production will start to ebb and fall. Globally, even with increases in U.S. oil production, the overall decline rate of oil production has fallen by 4%. The lack of global drilling, underinvestment and problems like Iran and Venezuela have seen global production fall at a time when the mirage of U.S. production masks a looming global oil squeeze.
This comes as Bahrain announces a major oil find.Bahrain, using new shale technology, has led strikes oil in biggest find since 1932 or maybe ever. The country plans to provide additional details on Wednesday about the reservoir’s “size and extraction viability”, so stay tuned.
The market also is talking about the possibility of New Sanctions on Iran. Reuters news reports that President Donald Trump has threatened to pull out of a 2015 international nuclear deal with Tehran, under which Iranian oil exports have risen. He has given the European signatories a May 12 deadline to “fix the terrible flaws” of the deal. The hardline on Iran may offer more support for oil but the real reason why oil is rising is supply and demand.
Demand in China for example. Despite trade war fears, China’s demand for oil continues to ramp up. Reuters reports that growth in China’s manufacturing sector picked up more than expected in March as authorities lifted winter pollution restrictions and steel mills cranked up production as construction activity swings back into high gear. The official Purchasing Managers’ Index (PMI) released on Saturday rose to 51.5 in March, from 50.3 in February, and was well above the 50-point mark that separates growth from contraction monthly. Analysts surveyed by Reuters had forecast the reading would pick up only slightly to 50.5. With those expansion rates in place, oil demand in China should stay near records.
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