Thursday this week, markets will get another look at oil inventory levels with the release of the weekly EIA Petroleum Status Report. The past few weeks have confirmed strong declines in oil inventory levels. Last week's drawdown was 9.9 million barrels, and the prior week saw a contraction of 5.9 million barrels.
This normalization of oil supply is pushing oil prices higher, along with less inventory out of Iran. As the below chart shows, oil prices at $74.19/bbl for WTI is aligned with inventory levels that were reached in early 2015. At that time though, inventory levels were on the upswing; thus, oil price pressure was to the downside then. With supply tightening now, price pressure is to the upside
The other aspect of the tightening supply level today is the fact increased drilling activity has been pursued at a more measured pace. Although rig count in the U.S. and Canada is up a total of 770 rigs since mid-2016, rig levels remain far below the 2,702 peak reached in 2012. The obvious conclusion is oil prices will continue to rise so long as supply continues to trend lower. At the moment, this seems the path of least resistance.