WTI Crude prices may be set for a 90-percent jump to $70 a barrel by the fall as U.S. oil producers may have “over-cut” production, Dan Eberhart, chief executive of Canary Drilling Services, told Markets Insider this week.
According to the manager of the drilling firm, U.S. oil companies have curtailed production too much too fast when prices collapsed, setting the stage for a “mini-supply shock” on the U.S. oil market.
Early on Friday, WTI Crude prices were rallying 4.38 percent to $39.05, as the market appears confident that the OPEC+ group will extend the current level of production cuts for one month after June at a meeting scheduled for Saturday.
According to Canary Drilling Services’ Eberhart, the extension will not matter much because the OPEC’s compliance with the cuts –which wasn’t perfect in May—will slip further.
“I see a case for West Texas Intermediate to approach $70 a barrel this fall,” Eberhart told Markets Insider.
The return of curtailed U.S. production amid rising oil prices, however, could threaten the oil price rally. Another major unknown for the oil market this summer is demand.
Global oil demand has improved over the past few weeks, led by China’s demand which has rebounded to 90 percent of its pre-coronavirus levels, while tentative signs of improvement emerge in other major economies, including the United States and India, as lockdowns are eased.
The key question is how fast demand will recover to pre-crisis levels. Some analysts say never.
In the United States, gasoline demand is slowly recovering and pushing the national average gas prices higher. Since Monday, the national average for a gallon of regular gasoline has increased by two cents to $1.99—three cents higher than a week ago and 21 cents more than a month ago, according to AAA. Last week, U.S. gasoline demand grew to 7.5 million bpd from 7.3 million bpd the prior week, the latest EIA data showed.