Prices are rising in reaction to a Goldman Sachs (GS) report that
says oversupply in the market has come to an end due to "sustained strong
demand as well as sharply declining production."
Crude prices have been recovering since hitting a historic low
around $26 per barrel in mid-February. CNN Money reported that at least that's
what Goldman Sachs says.
The oil market has gone from nearing storage saturation to being
in deficit much earlier than we expected," Goldman Sachs (GS) analysts
said in the research note.
The Wall Street firm said supply disruptions as well as stronger
demand from India, China and Russia, were behind the sudden switch.
All that is now forgotten. Supply disruptions such as pipeline
attacks in Nigeria and wildfires in Canada caused global production to drop by
as much as 2 million barrels a day in
the past two weeks alone, the bank said.
The firm said it now expected prices to average $45 per barrel in
the April-June quarter, and $50 per barrel in the second half of the year.
The problem facing the markets as well as OPEC is continued higher
production from Iran and Russia. As prices eek higher US shale producers will
like increase US production.
Shale producers were looking for a $45 price level to being upping
production and as prices soar towards $50 they will turn on the flow even
faster.
Once the Canadian Sands oil fields return to production now that
the wildfire has been contained supply disruptions will ease as we head into
the June 2nd OPEC and non
OPEC meeting on production and quota.
There have already been at least 29 U.S. oil and gas bankruptcies
this year alone, according to Haynes and Boone. That brings the toll since the
start of last year to at least 64.
The default rate among exploration and production junk bonds has
soared to a record 27% over the past 12 months, according to a recent Fitch
Ratings report. Fitch thinks the default rate could hit 35% by the end of 2016.
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