After a rough couple of months, the oil market is finally seeing some good news the week starting July 24. It looks as if U.S. shale oil producers, as well as the Organization of Petroleum Exporting Countries (OPEC), have been showing discipline as the U.S. oil rig count dropped during two of the last four weeks and companies like Anadarko Petroleum (NYSE:$APC) announced cuts to company spending.

Further tightening US oil supply is Saudi Arabia’s decision to limit export to the US after a meeting in Russia on Monday, July 24. As well, Nigeria has agreed to limit production to 1.8 million barrels a day. As a result of these decisions, oil prices in the US traded at more than $48 per barrel, quite a rise from the low 40s oil prices saw in early July.

Flexibility for shale oil producers

“We know U.S. shale can turn off and on pretty quickly,” Raymond James (NYSE:$RJF) energy analyst Robert Mark explained. “A five-, six- or seven-dollar swing on oil is enough for the economics on some of these shale plays to shift from go to not-go.”

As such, it looks like shale oil may be seeing some big shifts. Just recently, American Petroleum Institute released that U.S. inventories saw a drop of 10 million barrels in the week ending July 21. The reduction was about four times more than what analysts had previously expected.

Two weeks ago, big-name oil company Halliburton (NYSE:$HAL) started to caution investors and customers of some troubles with the shale boom. Although the company expects about 1,000 rigs to be at work in the U.S. by the end of 2017, they believe this will be the limit as costs get driven higher. However, some parts of the U.S. — like the Permian Basin in Texas — have lower operating costs than other parts of the country.

“The A-type prospects are going to drill in the 40s, like in the Permian,” Mark said. “And the next question — where do those B-type prospects come into play? My guess, from anecdotal evidence, is that’s probably in the high 40s, low 50s.” As such, it looks like this will remain unless the U.S. starts lessening the number of barrels that are currently in storage. That’s where Saudi Arabia comes in.

Saudi Arabia to cut down exports

Knowing that the U.S. Energy Information Administration’s (EIA) weekly report is currently being scrutinized by producers, analysts, and traders, Saudi Arabia has begun to cut down its oil exports to the U.S.

Exports have been cut down to 6.6 million per day, beginning the week starting July 24. Whether or not this number will lower as time goes on, the U.S. will no doubt start seeing some impact in its inventories thanks to Saudi Arabia. The oil price is unlikely to surpass $50 until U.S. sees its inventories lowered, and Mark believes that a smaller inventory will eventually happen. Future growth will be possible for oil producers, Mark added.

“As it stands right now the world is in slight deficit in terms of supply and demand,” Mark explained. “If you get those inventories down, then you have a more normalized industry and then you can look at the big picture.”

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