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Crude oil prices have been experiencing significant volatility lately. As we approach the peak season, it's likely that oil prices will remain strong in the coming months. The Brent market is more inclined to see upward movement, while the New York market faces substantial supply pressure, increasing the chances of continued price swings.
Summer is typically a high-demand period for both Europe and the U.S., with increased driving and electricity usage. During this time, crude oil prices often hit seasonal highs. The spot market has already started to reflect this expectation. According to the American Automobile Association, gas prices in some central and western U.S. cities have reached historic levels. This is partly due to stronger demand and maintenance schedules at refineries, leading to tighter supply conditions.
It’s unlikely that oil prices will return to the bull market seen before 2007. The main reason is that global crude oil supply is no longer in short supply. A major factor behind this shift is the rapid growth of shale oil production in North America. Since 2011, U.S. shale oil output has surged from 5.5 million barrels per day to 7.3 million today—an increase of 32.7%. This trend is expected to continue, leading to a sharp rise in U.S. crude oil inventories. On April 19th, U.S. commercial crude oil stocks hit the highest level since the 1980s, and just two weeks later, they set new records. Only in the week of May 10 did inventories dip slightly, as refineries increased their processing rates.
Looking ahead, drilling activity in the four main U.S. shale regions reached a 17-month high in mid-April, with output growing at a rate of 7.3 million barrels per day. Additionally, the U.S. Geological Survey reported in early May that North Dakota, Montana, and neighboring states hold an estimated 7.4 billion barrels of shale oil—double the previous five-year estimate. This suggests that the shale oil boom is far from over. However, U.S. crude oil exports remain low, at less than 50,000 barrels per day, meaning the domestic market is still relatively closed. This limits its immediate impact on global prices, especially given logistical challenges in transporting shale oil from production sites to refineries.
According to a Reuters survey of shipping data and industry sources, OPEC’s crude oil output in April is expected to rise by 280,000 barrels per day, reaching 30.46 million barrels from 30.18 million in March. Despite this increase, OPEC countries still maintain pricing power, with Saudi Arabia and Iran raising prices to buyers. Meanwhile, non-OPEC supply outside the U.S. remains limited.
In summary, as the peak consumption season approaches, demand is expected to grow steadily, acting as a key driver for higher oil prices. Although global supply outside North America remains tight, the supply side is exerting less downward pressure. Overall, the combination of rising demand and limited supply should support continued strength in crude oil prices.