U.S. Bank Wealth Management’s senior investment strategist, Rob Haworth, has said that the production cuts agreed upon by Russia and OPEC are already priced into the market, however U.S. oil investment and production seem to be increasing and speculation in the futures market is reaching the highest level in two years. This combination of circumstances, says Haworth, means that “oil prices are somewhat vulnerable in the near term.”
However, based on the four-week moving average for the continental forty-eight states, production in the United States has risen by about 40,000 barrels a day. Should production in the United States continue to rise at this pace, then basically, all of the production cuts by Russia and OPEC could be pretty much offset by early September, and an extended worldwide production surplus could be the likely result.
And then there are the rig counts.
According to research data released by Morgan Stanley, the peaks and bottoms of crude oil prices and oil rig counts have been spaced about three or four months apart in the last decade. On February 11, 2016, crude oil prices hit a 12 year low. As of January 17, 2017, they have rebounded just a hair over 100%. If the above pattern is holding true, the rig count at June 2016 should have been the bottom.
In the week just ended, the number of rigs working in the United States increased by 29, bringing the total to 551. That certainly indicates the potential for a rise in oil production. And, in fact, Goldman Sachs is forecasting that U.S. oil production will increase this year by over a quarter of a million barrels a day more than last year, if all of the rigs are back only by June.
The problem, though, is that an increase in the number of rigs also indicates more pressure on crude oil prices. That means this type of rig count data could have a very real effect on energy funds like the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), Fidelity MSCI Energy ETF (FENY) and the iShares US Oil Equipment & Services (IEZ).