Oil prices have dropped, which could lead to less production and investment from energy companies. Experts suggest that all banks should be ready to use the discount window, and it’s advisable for financially sound banks to take this step. The Trump administration supported increased drilling to lower oil and gas prices. This push may have affected OPEC’s plans to ramp up production to help reduce fuel costs, but the average gas price is still between $3.10 and $3.20, according to AAA.

Baker Hughes Rig Count

The Baker Hughes rig count, an important measure of oil industry activity, has been decreasing and hit multi-year lows. This drop in rig numbers shows there is less oil and gas drilling happening. Current data shows a clear link between falling oil prices and slower production planning and investment by upstream companies. Simply put, when prices drop sharply or stay low for a long time, producers with narrower profit margins or higher extraction costs cut back on spending. They reduce the number of rigs, delay new projects, and often decrease maintenance—all to save cash. This is exactly what the latest Baker Hughes figures highlight. The active rig count, a reliable measure of drilling activity, is approaching levels seen during earlier downturns. When rig activity declines like this, it often leads to tighter supply in the following quarters, usually bringing prices back in line over time. We’ve seen this cycle repeat itself multiple times.

Banking and Energy Markets

Separately, Powell and his colleagues have made an unusual suggestion: healthy banks should feel comfortable using the discount window. There seems to be a change in attitude, aiming to remove the stigma often associated with the Federal Reserve’s facility. This push indicates more of a precautionary approach than an urgent worry—helping banks strengthen their liquidity without delay. For traders involved in energy derivatives, especially those linked to West Texas Intermediate or Brent futures and options, these developments call for a close look at forward curves. As producers limit supply, backwardation might steepen again if inventory levels continue to drop. It’s important to watch not only the headline contract prices but also the differences between near and deferred months, as these provide clearer insights into supply expectations. Additionally, the average retail gasoline price, around $3.15 per gallon, is above levels that may suggest a production surplus. This could indicate either some consumer demand or underlying supply issues—potentially from transportation bottlenecks or refining challenges rather than from extraction alone. Mnuchin’s earlier focus on increasing domestic production sought to ensure energy independence and protect consumers from price volatility. However, it’s clear that global pricing, particularly established by Gulf producers, remains resistant to individual national strategies. Consequently, the difference between expected and actual supply represents the biggest directional risk in the coming weeks. From a trading perspective, the data softens the case for holding long energy positions unless there are hedges in place. Adjustments for volatility and declining open interest in certain contracts suggest a quieter market, but shallow liquidity could disrupt that calm without warning. We’re monitoring option skews for subtle signs—a widening of put-call premiums might signal hedging pressure from commercial players. All of this points to one conclusion: the market is responding more to fundamentals and less to speculative trends. Short-term traders should pay close attention to storage reports, refinery utilization rates, and any unexpected news regarding midstream infrastructure issues or geopolitical events that could affect flows. In the end, it’s essential to stay focused on the real-time supply dynamics and avoid overreacting to temporary price drops. Create your live VT Markets account and start trading now.

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