Oil Stays Glued To The Key $40 LevelOil swings between gains and losses near the key resistance level.
Oil Video 03.07.20.
The Number Of U.S. Rigs Drilling For Oil Continues To Decline
U.S. domestic oil production has recently jumped from 10.5 million barrels per day (bpd) to 11 million bpd and remained at this level. The upside in the oil market is the main reason for the increase in production – oil prices near $40 per barrel allow more wells to be profitable.
Nevertheless, the number of U.S. rigs drilling for oil continues to trend down. As per the latest Baker Hughes Rig Count, the total number of U.S. rigs declined by 2 to 263 while the number of rigs drilling for oil declined from 188 to 185.
The continued decline in the number of oil rigs raises hopes that U.S. oil production will not start a new upside trend anytime soon. The market has already reacted nervously to the recent increase of domestic production, and WTI oil was not able to get upside momentum above the $40 level.
Any additional increase in domestic production will come at a very inopportune time as the rapid increase in the number of new coronavirus cases could lead to the implementation of new virus containment measures that will hurt demand for oil.
In this situation, oil bulls should be glad to see the constant downtrend in the number of U.S. oil rigs.
Russia Sticks To OPEC+ Deal
When the OPEC+ deal was reached, some traders were worried that Russia will fail to live up to its promises as it has always had technical difficulties with quickly adjusting its oil production due to climate and geology.
This time, Russia is very serious about the deal. Preliminary reports for June showed that Russia produced 9.32 million bpd including condensate which was not included in the deal.
In May, Russia produced about 0.92 million bpd of condensate so if we assume that condensate production levels were intact, Russia finished June with production of 8.4 million bpd. According to the OPEC+ deal, Russia had to cut production to 8.5 million bpd.
I recently wrote that Saudi Arabia was increasing pressure on those countries who failed to cut their production in line with the OPEC+ deal. As the main OPEC+ members, Saudi Arabia and Russia, are very determined to help the oil market reach balance at higher prices, I’d expect that efforts to force laggards to follow the deal will be successful.
For the oil market, such discipline is a major supportive factor.
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