Inventories Down/Rig Count Up/Oil Prices Peaked…for now
Oil prices rose after Crude inventories were reported by American Petroleum Institute to have declined by 553,000 rather than increasing by 4 times that amount as expected, shocking traders and helping to push prices higher by more than a dollar instantly. Below, I will argue this bullish development will not last long.
Efficiencies have lowered the hurdle rate at which output from many Shale production sites may profitably operate. Rig count has grown by 38% from a low of 404 in May to 553 now, but still well below the September 2014 high of 1931. Rig count continued to grow after crude oil prices peaked at $107.73 (rolling first future) in June of 2014 and where I wrote on June 24th “In Short: We have very likely already seen a high of the bullish advance in crude.”
With domestic production capacities growing and the pink cloud from month-ago, OPEC sponsored output guidance, the bullish advance from sub $30 to last weeks, above $52 high seems even more ready for an extended pause at the least.
Net long positions held by ‘non-commercial’ accounts (often called ‘large speculators’ which include, but are not limited to hedge funds) are just 5% below the record high achieved back in June 2014 when Crude prices were peaking. These account types increased their net long positions by 140,000 in three weeks as Crude approached last week’s $52 high. The latest report, for reporting date October 18th, showed a very marginal decline in that net-long position.