All of the forecasts for domestic oil production appear feasible. The U.S. is home to some of the best oil and gas geology in the world with the largest number of independent explorers testing new theories about where to find and how to produce more hydrocarbons cheaper. These hundreds of independent operators are supported by the largest, most technically sophisticated oilfield service industry. Combine these elements with the deep capital markets existing in the United States that ensures that the petroleum industry has access to adequate capital for creating value for investors, and you have the makings of a vibrant and healthy industry. Depending on events around the world, the risk for the domestic oil industry is that its success could undercut the global oil industry’s recovery and knock down the prospect for a slow steady rise in oil prices and future domestic oil output. We don’t know what the odds of that happening are, but it is a scenario that everyone should keep in the back of their minds as they cheer on the nascent oil industry and oil production recoveries. However, too much U.S. oil success could actually be a bad thing for the industry, but probably a good thing for consumers.

Eoin Treacy's view

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The US oil sector remains highly competitive at today’s levels and the quantity of oil and gas available for export continues to increase. With a tight spread between near and far contracts, the futures curve is flat suggests a great deal of hedging has already taken place; supporting the view producers are profitable at today’s levels.

OPEC appears to be complying with the commitment to cut 1 million barrels of production and that has contributed to the higher range Brent crude prices have been locked in for the last couple of months. Nevertheless, a pick-up in demand is likely required to support the bullish case because US onshore unconventional supply is well placed to produce more the higher prices move.

Brent crude has been particularly inert over the last 10 weeks suggesting the breakout when it comes will be surprising for traders lured into a false sense of security by the uncharacteristic stability of the market. The price failed to hold today’s earlier rally and a sustained move above $58 will be required to begin to signal a return to demand dominance.

Natural gas extended its decline today and is now accelerating below its trend mean on warmer weather and strong inventories. A clear upward dynamic will be required to check momentum beyond a brief pause.