Crude oil regains poise

Crude prices have been able to recoup a big chunk of the losses they suffered on Monday afternoon. At the time of this writing, Brent oil was trading at $51.60 a barrel, a good $1 better off compared to the low hit on Monday, while WTI was trading at $50.75, likewise $1 higher from its corresponding low. As a result of the recovery, oil prices have moved back into the consolidative range they had been stuck in for more than two weeks now. It could be a long wait until the November 30 meeting.

The fact that oil prices are unwilling to fall further suggests market participants are still not convinced that a deal by the OPEC and Russia to curb production will fall apart, even if recent comments from various oil ministers point that way. After all, Iraq now also wants to be except from production cuts, like Iran and a few other OPEC members. Russia, on the other hand, is prepare to freeze its output while Saudi Arabia is willing to cut production only because they know that due to seasonal factors, demand is going to fall anyway. Still, hopes that a production cut or freeze will be agreed upon are not completely dashed and should the OPEC and Russia reach an agreement then this should lend further support to oil prices in the short-term.

In the long-term, U.S. and other shale producers will likely take advantage of higher prices to increase production once again, which should put a ceiling to prices. In the US, the recent sharp rise in drilling activity suggests that shale producers are already happy and willing to do that at prices around $50 a barrel. That being said, US commercial crude oil stocks have been falling sharply too in recent weeks. If the trend continues, then oil prices could rise a further $10-$15 in the near-term outlook until the impact of higher drilling activity puts a limit to prices.