Written by: Bryen Deutsch
It appears CNBC is running out of credible analysts who are bullish the oil
complex. The calls for $65+ WTI seem rather sparse. In fact, is there anybody in
their right mind who still thinks crude oil is going higher? Of course. We all know
the Keynes’ saying “The market can stay irrational longer than you can stay
solvent.” But seriously, how much longer can the bulls continue this irrational
move on what appears to be a bearish fundamental backdrop?
The Baker Hughes Rig Count is really one of the few remaining bull arguments. As
of Friday June 5, the US oil rig count dropped for a 26th consecutive week or
essentially 6 straight months. US rig counts are at the lowest level since 2010.
After reaching a peak of 1,536 rigs, the count has dropped 58% to 642.
The current move higher also has been fueled since Friday’s OPEC decision when
a shakeout started of overzealous bears who were thinking they could outsmart
OPEC and everyone else. This move higher has all the makings of a short squeeze
of weak bears. With that being said, all indications are that the market is making
a run at $65 or at least the May 6 high of $63.62.
The recent rising price of crude oil will likely lure shale producers into turning the
spigots back on sooner rather than later. Eventually, there will be an increase
again in rig counts. At this point, the realization that the USD is at multi year
highs, US crude oil inventories are at an all-time high, Iranian oil will soon likely be
back in the world market, OPEC is maintaining production at 30 million bpd, and
tankers are hoarding oil in the GOM will kick in. So essentially, the first Friday at
1 EST when the Baker Hughes Rig is released and we see our first increase in rigs
in months, I will be short this market.
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