Oil crashed less than two months ago as bearish factors piled up. Now the process seems to be going into reverse.
Crude oil futures (@CL) held above $60 on Wednesday for the first time since May 22. The price also rallied through its 50- and 200-day moving averages in the session — a potentially important technical sign.
An improvement in the supply/demand dynamic explains the move. Back in May and June, high inventories threatened the value of black gold. But three of the last four weekly reports from the U.S. Energy Department showed less oil in storage than expected. Just today, for instance, the government cited a drop of 9.5 million barrels — more than quadruple the projected decline.
OPEC, along with Russia, have also extended supply cuts all the way through March 2020. That will remove 1.2 million barrels of daily supply from the market.
In addition, lower prices are slowing the boom of U.S. oil and gas production. The Baker Hughes weekly rig count, a proxy for domestic drilling, just showed the least activity since February 2018.
Finally, there are hopes of stronger economic growth after last week’s terrific jobs report. President Trump has also halted his trade war against China and Federal Reserve Chair Jerome Powell just telegraphed an interest-rate cut on July 31.
In conclusion, energy has struggled for a long time with too much supply and weak demand. But now some of those trends may be reversing — at least for the time being.