Is the oil price recovering?
It is indeed up by nearly 40% from its low in March. But this is mostly for short-term reasons, such as worries about upheavals in the Middle East. Demand in China, now the world’s second-largest consumer and biggest importer of crude, is up. Americans are buying more gasoline as people respond to low prices by driving more miles in bigger cars. Crude inventories there have fallen for the third week running (albeit from extraordinarily high levels). American oil output is down slightly too. But this price rally is unlikely to be sustained.
Why?
Oversupply. Pumping by OPEC, the Organization of the Petroleum-Exporting Countries, has failed to derail the boom in American shale oil. Saudi oil production rose to a record 10.3m barrels per day (b/d) in April. The end of OPEC curbs on production sent prices tumbling in November. But productivity gains and cost-cutting in fracking and horizontal drilling have more than compensated for the price fall. Output in North Dakota, one of America’s main oil-producing regions, actually rose in March. Production there will probably reach 2m barrels a day (b/d) by mid-year.