The latest oil price rally started on Friday when Baker Hughes reported that the US oil rig count had plunged to 1,223 during the week of January 30. That’s down 24% from last year’s peak of 1,609 during the week of October 10.
I’m really surprised by the drop in the rig count since I expected that production cuts would occur quickly in response to the price freefall. However, US oil field production actually rose to a new high of 9.3mbd during the week of January 23. Most analysts expect it to continue rising through mid-year and then either level out or decline later this year through 2016. Furthermore, US crude oil inventories are at a record high for this time of year.
Nevertheless, oil market participants may be starting to price oil based on future shortages caused by today’s low prices. Everyone in the commodity pits knows that low prices are the best cure for low prices, just as high prices are the best cure for high prices as demonstrated by the stunning freefall in the price of oil from over $100 last summer to under $50 recently.
Today's Morning Briefing: High Octane. (1) Bottom of the barrel for oil price? (2) Nearby vs. distant futures. (3) It takes two to Contango. (4) Fewer rigs to count, but US still gushing oil. (5) Not everyone is cutting capital spending in the oil patch. (6) Energy analysts have slashed their long-term earnings growth expectations. (7) Don’t bet against US consumers. (8) Auto sales revved up by jobs, real wages, and confidence. (9) Inflation-adjusted hourly pay at record high. (10) Focus on market-weight-rated S&P 500 auto industries. (More for subscribers.)
I’m really surprised by the drop in the rig count since I expected that production cuts would occur quickly in response to the price freefall. However, US oil field production actually rose to a new high of 9.3mbd during the week of January 23. Most analysts expect it to continue rising through mid-year and then either level out or decline later this year through 2016. Furthermore, US crude oil inventories are at a record high for this time of year.
Nevertheless, oil market participants may be starting to price oil based on future shortages caused by today’s low prices. Everyone in the commodity pits knows that low prices are the best cure for low prices, just as high prices are the best cure for high prices as demonstrated by the stunning freefall in the price of oil from over $100 last summer to under $50 recently.
Today's Morning Briefing: High Octane. (1) Bottom of the barrel for oil price? (2) Nearby vs. distant futures. (3) It takes two to Contango. (4) Fewer rigs to count, but US still gushing oil. (5) Not everyone is cutting capital spending in the oil patch. (6) Energy analysts have slashed their long-term earnings growth expectations. (7) Don’t bet against US consumers. (8) Auto sales revved up by jobs, real wages, and confidence. (9) Inflation-adjusted hourly pay at record high. (10) Focus on market-weight-rated S&P 500 auto industries. (More for subscribers.)
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