Summary:

• Number of active rigs fell because of the hurricane that hit the US
• Market’s positioning doesn’t bode well for buyers
• Oil consolidates between 47.10 and 48.40 

U.S. energy firms cut oil rigs for a second week in a row ahead of Hurricane Harvey and as a more than year-long recovery in drilling slows down in reaction to soft crude prices. Drillers cut four oil rigs in the week to August 25, bringing the total count down to 759. hat compares with 406 active oil rigs during the same week a year ago. Drillers have added rigs in 56 of the past 65 weeks since the start of June 2016. he rig count is an early indicator of future output.

A fall in active rigs was caused mainly by the hurricane that hit the US. source: Bloomberg, ZeroHedge

Refineries, terminals, production platforms and other infrastructure have begun shutdown procedures with Hurricane Harvey set to make landfall on the central Texas coast on Friday night or early on Saturday as a Category 3 hurricane, potentially the biggest storm to hit the mainland United States in 12 years. Harvey could also bring flooding to inland shale oil fields in southern Texas that produce more than 1 million barrels of oil per day.

EOG Resources Inc on Thursday said it has curtailed drilling and shut in some production in the Eagle Ford shale region. Noble Energy Inc  and Statoil ASA  also said it was evacuating some staff from production facilities in the region.

Let’s get back to active rigs and production of oil. Despite a fall in active rigs, oil production has risen sharply in recent months. What’s more, the output is close to its highs from 2015. New rigs are more efficient and despite the fact that the number of active rigs is much lower than it was 2 years ago, the production remains solid.

Oil production is close to all-time highs. That’s because of the recent rise in active rigs. source: Bloomberg, ZeroHedge

 As for the market’s positioning, it remains close to all-time highs. The market is net-long, which doesn’t bode well for the commodity. First of all, fundamental factors doesn’t support a greater recovery. Output rises, demand remains muted, which supports a stabilization of the price. Secondly, such positioning suggests that it could be hard to find additional buyers with market in current state. As a result, a downward pressure could appear if traders decide to close part of their trades.

Market’s positioning doesn’t bode well for buyers. source: Bloomberg

 Looking at the chart one should notice a short-term consolidation between 47.10 and 48.40. If the market breaks above the latter, a move towards 50.30 could occur. On the other hand, a break lower would open a way towards 45.80, en route to 45.00. The downward move could be more possible as the price remains below two moving averages.

 Oil consolidates between 48.40 and 47.10. A break below seems to be more likely.