The recovery in the oil market is helping the petroleum industry emerge from its slump.

Last week, the international oil market was awash with positive news: On November 3, WTI crude oil prices surged past $55, reaching a six-month high. Earlier in the week, Brent crude had already crossed the $60 mark, rallying steadily for 10 consecutive days before surpassing $62 on the 3rd—a two-year peak. Unlike the boost from geopolitical events just one month ago, international oil prices have been climbing steadily since late October, largely driven by the ongoing rebalancing of the oil market over the past two years. This shift in fundamentals is now signaling a potential turning point, helping to accelerate the recovery of the global petroleum industry. On October 27, data released by the U.S. Energy Information Administration revealed that U.S. crude oil inventories fell by 24 million barrels compared to the previous week.

Release date:

2017-11-08

　　Last week, the international oil market was awash with positive news: On November 3, WTI crude oil prices surged past $55, reaching a six-month high. Meanwhile, earlier in the week, Brent crude had already crossed the $60 mark, rising steadily for 10 consecutive days—and on the 3rd, it climbed above $62, hitting a two-year peak.

　　Unlike the boost from geopolitical events one month ago, international oil prices have steadily risen since late October, largely driven by the oil market's continued return to balance over the past two years—marking the first signs of a fundamental shift—and spurring the petroleum industry to accelerate its recovery.

　　On October 27, data released by the U.S. Energy Information Administration showed that U.S. crude oil inventories fell by 2.4 million barrels compared to the previous week, while gasoline stocks declined by 4 million barrels. Surprisingly, despite being in the traditionally slow-demand season, both crude and refined product inventories dropped simultaneously—a trend that strongly suggests inventory drawdowns are accelerating. Meanwhile, the recent Brent spot premium has become particularly pronounced, with current-day crude oil prices trading at a premium over contracts due in six months or one year. Such frequent occurrences of the spot premium indicate tightening conditions in the oil market, a stark contrast to the past three years, when futures premiums had dominated market dynamics. Additionally, in September of this year, the International Energy Agency issued its most optimistic market report in two years, revising upward its forecast for global crude oil demand growth and urging caution as the oil market could swiftly shift from a state of ample supply to one of tighter conditions.

　　Oil-producing countries remain steadfast in their commitment to extending production cuts, providing the oil market with a strong expectation of a swift return to balance and stability. From OPEC’s joint production cut with non-OPEC members last November, to the recent decision by oil-producing nations to extend the cuts through the end of 2018—led notably by Russia and Saudi Arabia—these coordinated efforts, coupled with the high compliance rates among major producers, have been key factors supporting the crude oil market’s recovery from its bearish phase this year. Amid growing expectations for an extended period of output reductions, the upcoming OPEC meeting on November 30 is set to further bolster market confidence in rebalancing.

　　Previously, the market has been concerned that rising oil prices would spur a significant rebound in U.S. shale oil production, further exacerbating supply overhang and putting downward pressure on oil prices. However, recently, U.S. shale oil has shown an unexpected trend: while drilling rig counts—which had surged sharply alongside the oil price recovery—had already begun to slow down over the past two months, they even declined by 11 rigs last week. Meanwhile, the U.S. Energy Information Administration reported last week that domestic crude oil production in August fell slightly compared to the previous month. Analysts at Standard Chartered Bank noted that U.S. shale oil producers are less flexible than anticipated, with challenges such as high debt levels, rising oilfield service costs, and aging production blocks all contributing to a slowdown in the rapid expansion of shale output.

　　Some indicators also confirm that the rebalancing of the oil market is helping the industry emerge from its downturn. In the third quarter, major domestic and international oil companies all reported significant improvements in their financial performance. In the oilfield services sector, Schlumberger posted its highest revenue in nearly nine quarters, while Halliburton achieved quarterly profits exceeding $100 million for the first time in two years. Meanwhile, U.S.-based global talent firm NES predicts that next year, the oil industry will add more jobs than it cuts.

　　Dong Xiucheng, a professor at the University of International Business and Economics, stated that recent signs of recovery indicate that the imbalance between oil supply and demand has eased somewhat. He predicted that oil prices will likely continue to fluctuate next year, with price ranges expected to remain higher than this year. However, given ongoing uncertainties surrounding economic growth, the strength of the U.S. dollar, and the future of joint production cuts, it remains to be seen whether a turning point in oil prices has truly arrived.

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