Oil Gets Back Above $40 As Traders Cheer Encouraging Manufacturing PMI DataOil gains ground as traders hope that increasing manufacturing activity will support demand for oil.
Oil Video 03.08.20.
U.S. Oil Rig Count Falls Again
The recent Baker Hughes Rig Count report showed that the number of active rigs in the U.S. remained flat at 251. Meanwhile, the number of rigs drilling for oil declined by 1 to 180.
The previous report showed that the number of U.S. rigs drilling for oil increased by 1 to 181. Some traders have started to worry that such increase signals the beginning of a new upside trend in U.S. production which would be bearish for the oil market.
Fortunately for oil bulls, the new Baker Hughes Rig Count report has indicated that U.S. producers are not ready to meaningfully increase production at current oil prices.
This is especially important at times when OPEC+ countries are increasing their production by two million barrels per day (bpd) as they gradually ease the previous production cuts.
For example, Russia has stated that its oil production was in line with the OPEC+ deal in July while it has reportedly increased its oil production in the first days of August.
In this situation, an increase of production from U.S. shale companies could serve as a material bearish catalyst. However, the recent data indicates that U.S. oil production is set to remain mostly flat in the near term, which is good for the oil market.
Positive Manufacturing PMI Reports Provide Support To Oil Prices
WTI oil’s recent attempt to settle below the key $40 level was not successful, and oil is back above $40.
Oil prices got material support from the release of Manufacturing PMI reports. In Euro Area, Manufacturing PMI increased from 47.4 in June to 51.8 in July. In the U.S., Manufacturing PMI grew from 49.8 to 50.9. Numbers above 50 show expansion.
Traders are betting that recent improvements in the manufacturing segment will boost oil demand and support oil prices.
However, it remains to be seen whether the growth in the manufacturing segment will be sufficient enough to offset worries about new restrictive measures which are implemented to stop the spread of coronavirus.
Most recently, Philippines imposed a new two-week lockdown in its capital Manila to slow down the spread of the disease.
In Europe, the travel sector recovery is once again postponed as countries introduce quarantine measures for travellers and require them to wear masks.
According to a recent Reuters report, most potential tourists from UK, France and Germany will skip a holiday if they need to get tested for COVID-19 and are required to wear face masks. This does not bode well for the recovery of jet fuel demand.
For a look at all of today’s economic events, check out our economic calendar.