The revival of shale oil production - whose growth added to the oversupply that battered oil prices in mid-2014 - has restrained the rally this year and may worry OPEC leaders. However, crude oil prices are down 12.7% YTD.
"While oil prices are expected to recover towards the end of the year, they will remain in the $50-$60 band given the high level of stocks which will combine to put a cap on the price".
The precious metal climbed to a peak of $1,234.06/oz last Thursday in London, while gold-backed exchange traded funds attracted inflows worth $187m.
Saudi Arabia's domestic crude inventories fell further to 261.963 million barrels in January from 272.621 million barrels in December, the JODI data showed. Nevertheless, the evidence clearly shows that there is no shortage of oil right now. While Saudi's output is still lower than its target, a rebound in its production dented sentiment in the oil market. Production peaked in mid-2015 and fell by more than 1 million barrels per day by mid-2016.
USA crude oil settled at $26.21 per barrel on February 11, 2016.
US oil output has surged to over 9.5 million barrels per day from 8.5 million barrels per day in June of the previous year.
Meanwhile, encouraging economic data from the second biggest economy and the largest copper consumer China have raised expectations of higher demand for the commodity, which in turn have led to an increase in prices. The number of oil rigs drilling in the U.S has been rising at a steady rate.
U.S. Oil Rig Count, data by YCharts. There's some debate about how much of their cost savings come from productivity increases, compared to squeezing suppliers or shutting down in less profitable regions. Furthermore, costs were artificially inflated a few years ago due to shortages of personnel and equipment.
Oil futures have retreated in the past two weeks as a supply overhang driven by rising production from the United States overshadows a deal by OPEC and other producers to reduce output. If market balancing indeed has to start, we need to see a sustained drawdown in oil stockpiles.