US OIL RIGS INCREASED BY 21

US oil rigs increased by 21 last week which put pressure on the price of oil. Oil closed to its lowest in recent months at US$48.14 per barrel. Total count is now 659. analysts had expected a pull back in the number of rigs.

It is an irony actually. Just before the decline started in early July, oil was sitting at US$58 - US$62 per barrel. This led many US producers into believing that the oil price had finally stabilised and it was safe to resume drilling. With oil falling below the psychology US$50 per barrel, we could see the oil rigs count falling yet again in the next few weeks.  

The coming weeks could see oil testing its lowest level since March 2015.

Could it be that the market was over reacting towards the possibility of Iran adding another 1 million barrels of oil into the market in 2016?

Opec did say that will will maintain production at 30 million bopd, but in fact, total production is somewhere around 31 million bopd. Will Iran's 1.0 million bopd result in total production reaching 32 million bopd or will it remain at 31 million bopd, with other members reducing their production to accommodate Iran? If the latter is the case, there won't be any additional 1 million bopd added into the market which could be sigh of relief for all.

How this play out remains to be seen. But definitely we will see an upheaval in the US shale oil as Q2 earnings disappoint, with many operators running out of cash,and financing becoming increasing difficult. Equity sales too will likely draw flak from existing shareholders. Banks will also review their lending to shale oil companies as early as October 1. This will put a tight squeeze on the shale oil companies' financials. With limited options, we could well see some assets sales or mergers down the road. Only recently one listed Chapter 11 filing as an option. I expect several more companies to file for Chapter 11.

The above is just my opinion.