A number of reasons exist as to why oil prices are not rising faster. The oil price recovery has predominantly stalled and investors who normally refer to historical figures are puzzled as to why the prices do not move up for the time being.
There are good reasons for this. Oil price recovery is being almost a non-starter as the glut in crude oil for two years has transformed into a gargantuan diesel and gasoline surplus. The market is being flooded by these two products.
The price of Brent crude, the benchmark for international oil, has nearly doubled in the time from January to June. It touched $52 per barrel. After this mark, however, the price has danced back and forth within a narrow range. The oil was not able to go higher up. According to analysts, conflicting forces begin to develop as the crude supply have begun to balance, offering support to prices. There are fears of the glut continuing to remain, and it has simply moved downstream. The result is that the summer could be a long, volatile and hard one for the oil markets.
Length of time
The actual problem has nothing to do with the oil glut. In the United States, the oil output is dipping slowly and steadily over a length of time. The US produces approximately 8.4 million barrels every day- the lowest from about May 2014. The production of oil displays high serial autocorrelation over a period of time. It means that the production of oil usually continues in trends. The steps taken to up or cut the production tends to be succesful after a time period. This offers the production a greater degree of inertia. It is possible that American production will decrease, at least for the subsequent few months.
There has been a dramatic reduction in the rig count of Baker Hughes as compared to 2015, even though the rig counts have in all probability bottomed and could bounce a bit as well. It is not likely that the counts will go up in the near future despite the recently reported modest increase.
Iran is one of the probable culprits as to why the price of oil has not been recovered. The Asian nation has ramped up production at nearly the same rate compared to what the United States has. This situation is not sustainable. Low hanging fruits were already plucked and the country needs substantial foreign capital investment.