The oil rally is nearly three months old now, with crude up nearly 70 per cent from its low point of $26 US a barrel in early February.
A 70 per cent rally should be cause for at least a little celebration, a slight unclenching of the jaw for oil executives, but in the battle-scarred energy sector, pessimism is dying hard.
So let's have a look at this oil rally to try to figure out (as far as we can) if it's real or not.
The case for the rally
The case for the rally having legs can be captured in this chart, which tracks U.S. oil production over the early part of 2016. It has fallen slowly but steadily for 15 weeks now, after rising steadily since 2010. This is finally the result of oil rigs being idled and bankruptcies among shale oil drillers south of the border.
The U.S. Energy Administration releases production numbers every week, and as those numbers have been released over the past three months, oil has rallied.
U.S. crude oil production has been falling slowly but steadily since mid-January. (CBC/US EIA)
As for demand, summer driving season will begin soon. North Americans have been buying many trucks and SUVs, and the International Energy Agency expects world oil demand to rise to 96 million barrels per day in the summer. If supply in the U.S. continues to fall, that effectively balances the market.
The question is whether that supply will continue to fall as prices move up, or if the oil price rally will self-destruct as shale producers turn the taps back on.
Martin King, a commodities analyst with FirstEnergy doesn't think that will happen.
'We don't bet the company on guessing a price of crude.' - Steve Williams, Suncor
"I think people are still overestimating the potential for U.S. supply to turn around quickly," said King.
"I don't think that's the case now, and I think that's where views are starting to diverge. There are those who think prices could stay flat or come down, and our view is that they could stay flat or go higher."
The case against the rally
Stephen Schork, editor of the Schork Report investment newsletter, counts himself among those who think prices will revisit the lows hit in February.
"We are on trend now to end this year with U.S. production below 8.4 million barrels a day, which is 1.2 million barrels a day below last year's peak. And that seems to be the only thing the bulls are hanging on," said Schork.
He points to data that showed OPEC increased its production in April to 32.64 million barrels a day. That's just 10,000 barrels short of its all-time production high. Iran still want to increase output, and Schork doesn't expect Saudi Arabia to cede market share to its regional rival.
"The globe is going to remain awash in oil," said Schork. The Iranians and the Saudis are going to keep on pumping, the Canadians have to pump, so the falling U.S output will be offset."
The case for caution, no matter what
Of course, the oilpatch has the most at stake in this debate. Energy companies are in the midst of annual meeting season, where individual investors can show up, have a muffin, and ask the CEO a few questions. Not surprisingly, oil prices were on the agenda and caution was a theme in the answers.
Husky Energy is assuming $30 US oil, close to the low plumbed this year. Husky's chief executive Asim Ghosh made the point to investors that the risk of being too optimistic is much larger than the risk of being too pessimistic.
"We really want to make sure that, at least, the free market forces at work have brought that supply demand imbalance more into balance," said Ghosh
Suncor, which is basing its budget on $36 US crude, said there are signs that the market is coming back into balance, but it's too soon to put money behind those signs.
"We don't bet the company on guessing a price of crude," said Suncor chief executive Steve Williams.
"In the long run, our simple belief is that supply and demand works, and every indication is that's happening."
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