The oil price jumped back above US$50 a barrel overnight, with Brent Crude currently at US$51.86 a barrel according to Bloomberg.
It has been a dramatic rise in the past few days of more than 12%, with US stockpiles falling for a fifth week in a row. According to data from the International Energy Administration (IEA), US oil inventories fell nearly 3 million barrels – compared to an increase of 1.5 million barrels expected by analysts surveyed by Bloomberg.
The Organisation of Petroleum Exporting Countries (OPEC) agreed to cut production for the first time in 8 years last week too. Quotas for each OPEC country will be decided at a meeting in Vienna on November 30.
It's good news for Australia's oil and gas companies including BHP Billiton Limited (ASX: BHP), Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO) and Origin Energy Limited (ASX: ORG), in particular, the latter two.
Santos and Origin have been labouring under heavy debt loads and needed the oil price to head higher, otherwise they could have been forced to raise more capital to appease their bankers.
In early trading, BHP's share price was up 1.3% at $23.15, Woodside's share price was up 0.9% at $29.16, while Santos and Origin's share prices were up 2.6% and 1.3% at $3.96 and $5.49 respectively.
The problem for oil companies is that there doesn't appear to be much more upside from here.
As the oil price rises, more producers become profitable and can either restart production or ramp it up further, increasing supply and putting downward pressure on the oil price. Jeff Currie, head of commodities research at Goldman Sachs Group, says oil prices will struggle to get above US$55 a barrel as shale producers are able to hedge output at this level.
Foolish takeaway
Don't expect the oil price to see much of a gain from here unless global demand picks up, or OPEC decides to cut production levels even further.
