US rig count rose by 5 for week ending July 10, 2015 after rising 12 in the prior week. Oil rigs now numbers 645 after hitting a low of 628. This invariably puts pressure in the price of oil which has fallen to US$52.81 after being in the range of US$58 - US$62 per barrel for several weeks.
Will oil head lower?
I think the Iran talks will not meet the deadline as several military related issues remain a thorn in the discussion. We will know in the next few days. Should the talks fail, then we can expect to see some support for oil.
Over the weekend the EU will deliberate on Greece's latest proposals. I really hope that all parties have come to their senses and a breakthrough is reached. With the overhang in China (despite two consecutive rises in the stock market), we do not need a crisis on another front. A positive outcome will also give oil a boost.
China remains weak, We need to see a sustained rally in the stock market to ease concern. Should the measures taken by the government to instill confidence in the market, we could see oil going up. But if the current rally is short lived, then we should see oil under pressure again.
Anything worse coming out of Greece and China, then we could see the key US$50 support level breached.
With rigs count added, it could be a sign that shale oil producers have managed to bring the costs down substantially to be comfortable to continue drilling. This will continue to put the lid on the oil price.
Alternatively it could also mean that unless they increase production, their cash flow will continue to deteriorate due to falling prices as lately there has been some signs of falling production. This is a sign of desperate measure which could spell trouble further down the road for these companies.
Which of the two is any ones guess. We just have to wait to digest the Q2 reports from these companies which will be out in the coming weeks.
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