US crude oil dropped by 3.2 million barrels last week, according to a US Energy Information Administration report. It suggested that the oil market is rebalancing as the global oil glut eases. The US benchmark, West Texas Intermediate, rose 1.2 per cent to $51.23 a barrel, while the global benchmark, Brent crude, was up 2.1 per cent to $52.51 a barrel. Another encouraging sign is an increase in active US oil rigs.

Over the past few weeks the US rig count has bottomed out but the question remains, how sure are the operators that oil prices will continue at their current levels? Another uncertainty is how this week’s uplift is sustainable, as supply disruptions hit Nigeria as militants attacked the country’s oil facilities. As a result, the Nigerian oil crisis has prompted the government into taking a serious look at diversifying its economy.

Data from China showed that oil imports were strong in May, which is heartening news to many in the industry as China is the world’s second-largest oil consumer. Chinese oil imports this year to the end of May were 16 per cent up on the same period last year.

According to Timothy Faraday, Chief Economist at Global Associates, “In Nigeria, a militant group is sworn to board up the country’s oil operations, with multiple attacks on key pipelines and facilities, reducing the country’s output to around a million barrels a day. Production in the US also continues to decline as most companies have cut investment due to the price collapse. However, the worry is that as the oil price has risen above $50, some US shale producers may look to intensify their output, which would then flood the market with more crude.”

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