Oil Continues Its Attempts To Settle Above The $40 LevelOil tries to gain additional upside momentum in order to get above the key resistance level.
Oil Video 22.06.20.
U.S. Oil Rig Count Declines Again
Baker Hughes has reported that the number of U.S. drilling rigs fell by 13 to 266 as of June 19, 2020. The number of rigs drilling for oil declined by 10 to 189.
We have recently discussed whether U.S. oil production will start to increase once WTI oil manages to get above the $40 level. At this point, the recent upside of the oil market fails to stop the decline in the number of drilling rigs.
The recent EIA Weekly Petroleum Status report showed that U.S. domestic oil production dropped by 600,000 barrels per day (bpd) to 10.5 million bpd. As the number of rigs drilling for oil continues to shrink, U.S. oil production may have further room to fall.
Such scenario is bullish for oil since the continued decline in the U.S. domestic oil production may finally put some pressure on elevated inventories. This time, OPEC+ is very serious about achieving perfect compliance with production cuts, so the oil market should have a good chance to start rebalancing once demand picks up to more normal levels.
Coronavirus Is Likely The Only Factor Which Prevents Oil From Going Above $40
As production continues to decline while demand is rebounding, fears about the potential second wave of lockdowns are likely the only catalyst that prevents oil from gaining additional upside momentum.
The World Health Organization has just reported a record daily increase in coronavirus cases, and some traders fear that the world will have to implement additional virus containment measures.
At this point, developed economies continue to reopen, and the problems on the virus front have no impact on physical demand for oil. The world economy is certainly not ready for a replay of April – May lockdowns so even if some countries will face a major increase in new infections, they will be forced to use softer virus containment measures in order to shield their economies from the second blow.
It remains to be seen whether global markets will take this threat seriously as they are very focused on the continued expansion of monetary stimulus measures. If this trend continues, oil will have good chances to continue its current upside move.
For a look at all of today’s economic events, check out our economic calendar.