The Baker Hughes weekly rig count reports a drop of two oil rigs, bringing the total to 422. Meanwhile, gas rigs increased by nine, totaling 117. In total, the rig count rose by seven, reaching 544 rigs.

Oil Rig Decline

The slight dip in oil rigs suggests that producers remain cautious and disciplined with their capital. This small reduction in future supply supports a positive outlook for crude prices. It seems that U.S. shale producers are not aggressively pursuing new drilling even as prices rise. This decrease in drilling is occurring while the oil rig count is close to its lowest level since early 2022. Recent data from the U.S. Energy Information Administration shows a reduction of 2.5 million barrels in crude inventory, along with OPEC+ maintaining its production cuts. Traders might want to consider strategies to benefit from rising oil prices, such as buying call options on WTI futures. In contrast, the significant increase in natural gas rigs indicates that producers are seizing opportunities from recent price gains driven by forecasts of a summer heatwave. This boost in future supply could lead to lower prices in the medium-term, especially for contracts later in the year. This is the largest weekly rise in gas rigs in over a year.

Natural Gas Rigs Surge

This increase in drilling comes as natural gas in underground storage is more than 20% above the five-year average, according to the latest government data. The mix of rising drilling activity and already high inventories may limit prices after the short-term demand decreases. Traders could consider buying put options on Henry Hub futures for the winter to prepare for a possible price drop. The clear difference between oil and gas drilling activity offers a relative value opportunity. Historically, such disparities suggest a strategic shift by energy companies based on their views of the commodity market. We believe the market might be underestimating the potential for continued tightness in the oil sector compared to the well-supplied natural gas market. Create your live VT Markets account and start trading now.

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