Oil prices remain relatively stable and ended on Friday with slight losses, taking them close to where they started the week. Brent crude fell to $63.46 and WTI fell to $56.20 per barrel.
Continuing threats to supply from the Arabian Gulf and huge drawdowns in US crude oil inventories could not dampen doubts over future demand and fears about sluggish growth.
US oil inventories fell by a massive 10.8 million barrels to the lowest level in four months, according to the EIA. This decline was mostly attributed to the impact of Hurricane Barry on the Gulf of Mexico offshore oil fields.
The EIA reported that US oil production fell to its lowest level since October 2018. US oil output fell sharply by the most in almost two years to 11.3 million bpd.
But the market shrugged off that news and prices did not react. Traders continued to focus on the global oversupply situation rather than the latest OPEC+ cuts aimed at providing support to the oil price.
How can the surge in US oil production cause downward prices in oil while a sudden sharp decline in production keeps prices stable?
The growth in US oil production was always thought to outpace the growth in global oil demand since 2018. This was one of the main reasons for keeping OPEC+ supply cuts for the third year in a row.
The EIA sees US oil production continuing to set records through 2027. But demand growth will swiftly absorb any additional barrels from shale producers in the medium term, and indeed that requires much more than 2.5 million bpd of incremental pipeline capacity that is expected to come into service from the Permian Basin between now and the end of 2020.
Until now, the limited US pipeline capacity to move crude oil out of the shale plays in the Permian has been the biggest challenge facing shale producers.
Though some shale producers raised capital expenditure during high oil prices in October 2018, oil prices subsequently fell and the pace of that spending slowed. That has raised questions over expanding export capacity in the near term.
Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq