Vladimir Zernov
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Crude Oil

Oil Video 29.06.20.


The Number Of U.S. Oil Rigs Continues To Decline

The recent Baker Hughes weekly survey indicated that the number of active drilling rigs in the U.S. declined by 1 to 265. The number of U.S. rigs drilling for oil also declined by 1 to 188.

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The number of active rigs plummeted since the beginning of the coronavirus crisis and had a significant negative impact on U.S. domestic oil production.

However, the recent EIA Weekly Petroleum Status report has shown that U.S. oil production has increased from 10.5 million barrels per day (bpd) to 11 million bpd.

For now, this increase failed to trigger a significant sell-off as traders continue to bet that demand will recover fast. However, the recent surge in the number of new coronavirus cases around the world raises the possibility of additional lockdowns which could negatively impact the demand for oil.

At this point, the oil market is still in a very bullish mode as virus worries are only sufficient enough to trigger one-day sell-offs which are followed by immediate rebounds.

Chesapeake Energy Files For Bankruptcy

One of the leading shale players Chesapeake has just filed for bankruptcy protection in order to restructure its debt amid the unprecedented crisis.

While Chesapeake was focused on gas production, its fate is expected to be shared by many shale players this year since oil prices stay at low levels.

Chesapeake plans to cut the number of drilling rigs as part of its plan to improve its business, but traders should not expect that each bankruptcy will lead to immediate production cuts.

In a bankruptcy, the company’s lenders typically become the new shareholders while previous shareholders get wiped out or get a token recovery. This process makes the company much stronger as it get rid of the debt burden and the associated interest payments.

Thus, a company becomes more competitive and has more funds to invest in its business. Failure to understand the U.S. bankruptcy process has already cost billions of dollars to Saudi Arabia when it tried to destroy the U.S. shale industry back in 2014 – 2016.

Saudi Arabia won’t be making the same mistakes twice but traders should keep in mind that shale oil bankruptcies will not automatically lead to major production cuts.

For a look at all of today’s economic events, check out our economic calendar.

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