Oil was under pressure on Friday due to concerns about China’s economic growth. However, the pressure was low as oil was supported by the weekly Baker Hughes rig count report, which showed that the number of US drilling rigs had dropped from 21 to 318. In comparison, the U.S. There were 983 leaks a year ago.
A recent EIA Weekly Petroleum Status Report showed that US domestic oil production has declined to 11.5 million barrels per day (bpd), and will continue to fall as the number of drilling rigs continues to decline.
Tomorrow, the API Crude Oil Stock Change Report will provide a new opportunity to evaluate whether sustained production cuts have led to a decrease in oil inventories.
Oil exploration is a major hurdle in the path of oil at high levels, so traders and investors will continue to watch on a weekly basis in an effort to see if the rebound in oil demand is strong.
Currently, America’s domestic oil production is set to go below 11 million bpd this year, as low oil prices put pressure on producers and force them to close informal wells.
If oil remains low for much longer, US production will continue to decline as some producers will have to lose protection from hedging programs until 2020 and will be forced to adjust their production levels.
It is still difficult to evaluate the recovery time of oil demand.
The American Automobile Association decided not to release the traditional Memorial Day forecast because it was too difficult to evaluate the future dynamics of oil demand as the economy attempts to rebound after a rapid phase of the coronavirus crisis.
At this point, the rebound of oil demand is the biggest unknown catalyst for the oil market. The situation on the production front is very clear as OPEC + countries officially announced production cuts, while US oil production is projected to decline.
While the production cut is definitely improving the market situation, it takes two to tango, so oil also needs support from the demand side.
It remains to be seen whether traders will be willing to increase their bets on oil without looking at concrete evidence of better demand for oil. For now, the oil market is in an optimistic mood, and the upside trend continues.