What's going on?

Oil prices went up substantially after data showed an unexpected drop in US oil stockpiles, e.g. oil that is in short-term storage. Oil was up almost 6% on the day � which is a big move, even for oil.

What does this mean?

Earlier this week, Goldman Sachs made headlines by saying that oil could halve in price as a result of production cuts not being big enough. But this recent data might be an early sign that oil production in the US is being reduced more quickly than analysts thought. That would be a positive for the price of oil (as there is less of it to sell, its price should go up).

Why should I care?

1. Because of its relatively high cost of production, US shale drillers will probably have to cut production. That will make it difficult for them to pay back the huge amount of debt that they took on to grow in previous years, possibly threatening their survival as companies. Since stocks and bonds of shale producers constitute a significant portion of financial markets in the US, that�s important.
2. But the long term effect is probably a positive for oil prices, as US production likely decreases significantly. The recent data on stockpiles might be a harbinger of what is to come.
3. In the long term, the US shale producers that survive should�benefit from a higher oil price.