Baker Hughes has released new drilling data this week, showing an increase of 2 oil rigs and 1 natural gas rig. Oil prices are currently at $62, which means drilling activity is not slowing down. Exxon is the main company investing in drilling this year, even with economic uncertainties. This indicates ongoing commitment in the energy sector, with drilling remaining steady.

Current Market Dynamics

The slight rise in drilling rigs suggests that producers are comfortable with oil prices around $62. However, this isn’t a strong push we would expect if a significant price increase were anticipated. The market seems well-supplied for now. It’s important that a major company like Exxon is leading this activity. This suggests that smaller independent drillers are being cautious and adhering to their financial discipline since the market fluctuations of 2023. This cautious approach could limit the chance for a sudden increase in US production. Recent government reports support this supply outlook. The Energy Information Administration announced last week that US crude oil inventories went up by 1.2 million barrels, which surprised analysts who expected a slight decrease. A rising rig count alongside growing inventories indicates a well-supplied market. For traders, this suggests low oil price volatility in the near future. Strategies that thrive in a stable market, like selling covered calls or setting up iron condors in the $60-$65 price range, might be beneficial. We don’t see any major triggers for significant price changes in either direction.

Global Demand Signals

On a global scale, demand signals are mixed, which may limit price increases. Recent manufacturing PMI data from China showed a figure of 49.8, indicating a slight contraction and raising concerns about demand from the world’s largest oil buyer. This weak demand outlook serves as a strong counterbalance to supply increases. Given this situation, looking into low-cost bearish options is worth considering as a hedge. Purchasing out-of-the-money puts on crude oil futures for the upcoming months could act as affordable insurance. This would help protect against a possible drop below $60 if economic worries start to overshadow steady, though not very strong, drilling activity. Create your live VT Markets account and start trading now.

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