Oil price rally becomes 'double-edged sword'

The oil price has fallen from its latest 2016 high after signs that a rebalancing of the market is already being compromised – by the rally caused by the rebalancing.

In short: tentative action to reverse the supply glut has driven a strong price upswing in recent weeks, but the higher price is encouraging struggling producers to pump more oil to boost profits. "The drop in production will halt... It's a bit of a double-edged sword," says James Burgess on Oilprice.com.

Specific data causing the concern came on Friday, when, City AM reports, news broke that the rig count of the number of active drilling wells in the US rose in February, the first time in six months. This defies those who expect US shale production to wither consistently this year and potentially vindicates those who warned higher prices would bring nimble US production back to the market. Last week, international benchmark Brent crude rose comfortably above $42 a barrel as the US Energy Information

Administration showed US oil output had dipped closer to nine million barrels a day – and could fall to 8.6 million by the end of this year and 8.2 million by the end of 2017. That also came on the back of confirmation that around three-quarters of global producers from both in- and outside of the Opec cartel would meet next month to discuss a freeze to supply at January levels. But Panos Mourdoukoutas writes on Forbes that even this underwhelming agreement might be in doubt if US exports are ramped up.