Oil Hits $50 A Barrel, Will It Last?

In what could be an important milestone for the world energy markets, oil prices have crossed over the $50 per barrel threshold for the first time in over seven months. Fueled by lower-than-expected stockpiles and global supply outages, the recent jump in oil is providing much-needed relief for an industry that has been wreaked by low prices.

U.S. and Brent crude prices moved past the $50 point on Thursday, primarily in response to a report that showed U.S. crude stockpiles were down more than anticipated. Furthermore, armed militants have slowed production in Nigeria, an electricity shortage has slowed production in Venezuela, and wildfires have taken a toll on production in Canada.

While $50 a barrel seems like a saving grace, especially when one considers that we were seeing $26 barrels as recently as February, it’s a far cry from the $100 levels that were seen just a few years ago. The recent oil glut has put a serious damper on the economies of oil dependent nations like Saudi Arabia, as well as producers like Chevron (NYSE:CVX) and BP (NYSE:BP) .

Of course, one should never underestimate the power of a psychological barrier. Perhaps reaching the $50 price point will inspire the oil market to push further, which could definitely be true if U.S. production remains lower.

Interestingly enough, lower U.S. production is exactly what Saudi Arabia and other OPEC countries wanted when they decided to continue boosting production volume in the face of falling prices. Although it hurt OPEC in the near-term, if U.S. production stays down, OPEC members can regain valuable market share.

Unfortunately, some signs indicate that the $50 price may not stay for long, as much of the loss in production has come from temporary sources. The aforementioned political crises in Venezuela and Nigeria have made an impact, and pipeline explosions in Iraq and Colombia took oil out of the market in the first quarter.

Oil investors will now look to next week’s OPEC meeting in Vienna. Tensions between member nations are extremely high, and the group is not expected to reach a new deal to lower or even freeze production.