Some concerned oil market participants believe oil is rallying without strong fundamental cause. A case can be made that oil’s rally is defying still troubling supply dynamics and tepid demand. Elevated levels of production remain an issue for oil as well. OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.
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The bulk of production cuts “have come from the United States, where low oil prices have forced drillers to cut back on high-cost shale production. U.S. output fell to 8.9 million barrels per day in April from a 45-year high of nearly 9.7 million bpd during the same month last year,” according to CNBC.
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United States Brent Oil Fund
