After hitting 2016 highs, oil prices eased on Tuesday as the market concentrated on production outages that caused Goldman Sachs to issue a bullish sentiment on near-term prices.
The U.S. crude futures stood at $47.89 a barrel at 0655 ET, after they hit highs of $48.42 previously, the strongest level since October of last year.
Meanwhile, Brent crude futures dipped five cents or 10% to $48.92 a barrel, after soaring $49.47 earlier, the highest since early November.
Crude oil prices have climbed for most of the past two weeks. This is due to the combined disruptions from several parts of the world, namely from Nigeria, Venezuela, and Libya, the wildfire in Canada’s oil sands region that prompted decrease of its crude, and falling U.S. production.
These output disruptions are seen as an aid in bringing market equilibrium. These pushed up prices for NYMEX June futures delivery CLc1 up as much as 11% in the previous four days. On Monday, it settled at $47.72 a barrel.
Traders are also observing the relationship between futures contracts expiring in the latter part of 2016 and similar contracts expiring in late 2018. The spread, or otherwise known as contango, has shrunk to its smallest margin since November 2014. This narrowing contango puts forward that the oversupply is finally diminishing after years of excessive output.
However, should U.S. shale producers increase drilling once more, the market may fall back yet again.
With a number of these aforementioned shale producers claiming that they would turn the spigots back on if prices went to about $45 a barrel, the market has been preparing itself for a renewed supply as prices rebounded from 12-year lows, but that may not happen immediately.
Phil Flynn, senior energy analyst at Price Futures Group, stated that: "Were not seeing any signs that the U.S. energy industry is in a hurry to respond to a jump in demand because theyre still cutting back on projects."