Oil Gains Ground As Storms Force Shutdowns In U.S. Gulf Of MexicoOil tries to settle above $42.50 as the threat from two storms knocks off more than 1 million barrels per day of oil production.
Oil Video 24.08.20.
First Signs Of A Rebound In U.S. Drilling Activity
The recent Baker Hughes Rig Count report has indicated that the number of active drilling rigs in the U.S. increased by 10 to 254. The number of U.S. rigs drilling for oil grew by 11 to 183.
The report highlighted a sudden rebound in drilling activity which happened a week after the previous report showed that the number of U.S. rigs drilling for oil declined to 172.
At this point, oil traders will have to guess whether the recent oil price stability has pushed U.S. oil producers to increase production. The most recent EIA Weekly Petroleum Status Report indicated that U.S. domestic oil production remained flat at 10.7 million barrles per day (bpd).
The increase in the number of active drilling rigs should ultimately lead to the increase in oil production. However, it remains to be seen whether such increase will be significant.
As the demand for oil continues to rebound while the economy recovers from the coronavirus shock, a moderate increase in oil production should not become a major problem for the oil market.
At the same time, traders will closely watch the upcoming rig count reports to see whether the number of U.S. rigs drilling for oil continues to increase.
Two Storms Provide Support To Oil Prices
Two storms, Tropical Storm Laura and Hurricane Marco, have forced U.S. Gulf of Mexico oil producers to shut down more than 1 million bpd of oil production.
Not surprisingly, this event has provided support to oil prices which were under some pressure after the release of Baker Hughes Rig Count report that showed a sudden increase in the number of rigs drilling for oil.
The storms are a temporary bullish factor for oil but traders should note that they will not be able to provide any long-lasting support unless oil producing infrastructure is seriously damaged. Currently, there are no indications of such damage.
Longer term, a sustainable decrease in inventory levels is the main potential catalyst that can push oil prices to higher levels. As the U.S. driving season comes to an end, traders will focus on whether the recent downside trajectory in the inventory levels will be maintained.
For a look at all of today’s economic events, check out our economic calendar.