Recent data and price indicators suggest upside to oil prices from current level, says Barclays Research

Recent data and price indicators suggest upside to oil prices from current level, according to the latest report from Barclays Research.

The EIA released detailed statistics for the month of July this week, which showed growth in L48 onshore crude production continues to decelerate, more than expected.

This data, along with the findings of the most recent Dallas Fed Energy survey, which showed operators are finding it difficult to increase output  primarily due to lower commodity prices and continued investor focus on capital discipline, highlights downside risks to our 10.6 mb/d year-end forecast for US oil production.

Oil markets have made a swift round trip from demand to supply anxiety, as Saudi Aramco says it has recovered lost output sooner than most expected and the economic outlook remains challenging.

As expected, market participants looked past the attacks on Saudi oil facilities that shut more than half the country's output, as the disruption proved to be short-lived and did not have a material impact on exports, thanks to inventories.

In a Bloomberg interview earlier this week, Ibrahim Al-Buainain, CEO of Saudi Aramco's trading division, said the company was currently producing slightly more than it was before the attacks to replenish stocks. Crude oil exports from the Kingdom averaged 6.6 mb/d in September, about 95 percent of the prior three-month average, according to Petro-logistics, the report added.

"Positioning data indicates operators likely used the recent spike in prices to hedge aggressively, as swap dealer short positioning in WTI increased by over 7 percent that week. While it might provide some temporary respite for cash-strapped operators, would not have a material impact on our supply estimates, as US operator hedging was already significantly below last year's levels at the end of Q2," the report further commented.