Peiyang Chemical Equipment Co., Ltd.
Oil Prices Rose as Inventories Fell: Foreign Exchange

After three years of ups and downs in the oil market, there's some good news this week. There are indications that the producers of US shale and OPEC are cutting production.

The number of wells produced in the United States has been falling for two weeks in the last four weeks. Anadarko Petroleum has announced in its earnings report that it will cut spending in the second half of 2017. Halliburt, an oil services firm, has also said that many recent customers are slowing production.

In addition, Saudi Arabia said on Monday after a meeting with Russia in St. Petersburg that it would limit its oil exports to the United States. Nigeria has agreed to limit its production to 1.8 million barrels a day. As a result, oil prices rose to $48 a barrel.

Shale oil producers are flexible

Robert Mark, energy analyst at Raymond James, said: "we know that shale oil production in the United States can cut production very quickly. A drop of five, six or seven dollars in oil prices would be enough to stop production for these producers."

U.S. crude stocks fell 10 million barrels in the week ended July 21, about four times then analysts' expectations, according to data released Tuesday by the American petroleum institute.

Two weeks ago, Halliburton predicted that the number of production Wells in the United States would reach 1,000 by the end of the year. Then, as the demand for services rises, so does the cost, and the number will not increase. As of last week, 950 oil Wells were operating in the United States.

As Mark said, shale oil margins are small, in some parts of the United States, such as the Texas Permian basin, the production costs are lower than in other parts of the country. About half of all production in the United States last week was in Texas. These low-cost regions can be kept running at $40, but it is not necessarily in other areas, and they can't make money if the price is too low.

This makes oil prices also have an upper limit, because once oil prices to about $50, more other parts manufacturers in the United States will join the production force, and it improves the supply of crude oil, so the prices will not rise further.

Saudi Arabia is trying to reduce its U.S. inventories, and Saudi Arabia is trying to reduce its exports to the United States in an effort to help boost oil prices. It knows that the weekly report of the U.S. energy information administration (EIA) is the focus of attention from producers, analysts and traders. Saudi Arabia has begun to recycle its oil exports to the United States.

Saudi Arabia this week said it would set an export ceiling of 6.6 million barrels a day, far less than it was a year ago. This does not necessarily mean that it transports oil to other parts of the world, but it should have an impact on the number of us stocks. It is hard to see prices above $50 until these inventories fall.

Mark thinks this will happen eventually, when oil producers can better predict future developments. He said "There is a glut of oil in the world, if you reduce these stocks, then you will have a more standardized industry, you can take a look at the overall situation."