Oil Pulls Back From Multi-Month Highs

Oil Video 26.11.20.

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

The recent Baker Hughes Rig Count report indicated that the number of U.S. rigs drilling for oil increased by 10 to 241. The key question for the market right now is whether higher oil prices will lead to increased activity of U.S. oil companies and boost domestic production levels.

Yesterday, EIA reported that U.S. domestic oil production increased from 10.9 million barrels per day (bpd) to 11 million bpd. If the number of U.S. oil rigs continues to increase, production will also increase which may lead to a rise in inventory levels.

In turn, higher inventories may put pressure on oil prices despite the current bullish mood.

As oil moves to higher levels, it will become increasingly sensitive to news about domestic production and inventory levels. Mass vaccination is still months away, and the challenging situation on the coronavirus front may put some pressure on oil demand in December and the first few months of the next year.

At this point, it looks like U.S. oil companies may quickly react to rising oil prices and boost production in a timely fashion.

Gasoline Demand Remains Under Pressure

EIA has recently reported that gasoline demand decreased from 8.26 million bpd to 8.13 million bpd. A year ago, demand for gasoline stood at 9.2 million bpd.

While the decline in demand for gasoline has to be expected at this time of the year, it is obvious that there is no additional progress towards last year’s numbers.

The current gasoline demand pattern is similar to what we have seen at 2019 but the ups and downs are taking place at much lower levels.

Most likely, gasoline demand will not be able to get back to the previous normal state without normalization of the coronavirus situation in the U.S. which is not expected until the rollout of vaccines.

During the recent rally, oil traders ignored any negative near-term developments and focused on positive vaccine news. However, it remains to be seen whether they will remain optimistic at higher oil price levels if demand continues to decline.

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