China was expected to account for 30% of global oil demand growth this year, according to Tamar Essner, an energy analyst at Nasdaq Advisory Services. But it may not be able to soak up the supply that's flooding out of the Organization of the Petroleum Exporting Countries. Meanwhile, the U.S. oil sector may be rebounding from OPEC's push to keep prices low and protect market share. The domestic rig count rose last week for the first time since December, and shale producers have shown surprising tenacity as they cut costs and focus on their most productive fields. On Tuesday, the Energy Information Administration boosted its outlook on U.S. oil prices to an average of $55.51 a barrel this year, up from an earlier view of $55.35. The EIA also raised its 2015 U.S. production outlook to 9.47 million barrels a day from a prior forecast of 9.43 million. Iran Priced In, Greece Not "We have probably seen a bottom on rig counts," Essner said. "U.S. production isn't going to roll over. Shares of U.S. shale firms like EOG Resources (EOG), Continental Resources (CLR), Sanchez Energy (SN), Concho Resources (CXO) and Laredo Petroleum (LPI) rallied Tuesday. Greece's effect on oil prices is more secondary, as uncertainty over the euro has investors scrambling for a safe haven in dollars, Essner noted. Because oil contracts are largely denominated in dollars, the currency's appreciation puts downward pressure on crude prices. But the severity of the Greek crisis, like China's stock collapse, wasn't expected by markets and therefore not priced in, said Flynn, adding that the ripple effects of Greece leaving the eurozone are unknown. "Markets were caught by surprise that Greece has gotten to this point," he said. The prospect of Iranian oil returning to world markets, however, was priced in, and any nuclear deal that clears the way for oil exports still has to pass political hurdles, like getting congressional approval. "People have a sense that if an Iran deal is done we are going to be flooded with oil," Flynn said. "We might not see any Iranian oil on the market in the next year."
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