Oil futures started on a positive note as the first decline in drilling activity since January rejuvenated the market after seven straight sessions of price gains. After a record 23 consecutive weeks of rising numbers of active rigs, shale producers may have hit a bottleneck regarding the low prices.
This decline shows the struggle that U.S. oil supply faces as they try to maintain profitability at the price of $40 to $45 a barrel.
Crude futures for delivery in August (CLQ7), recently traded up to $46.39 a barrel in the Globex electronic session on the New York Mercantile Exchange, and September Brent crude (LCOU7), on London’s ICE Futures exchange rose to $49.08 a barrel.
On Friday, Crude hit their first seven-session winning streak since August, which capped their gains of 7% for the U.S. oil benchmark, and 5.2% for Brent. The signs of slowing that this showed as the second half of June arrived, and the deceleration in U.S. is something that many producers and investors have been longing for.
However, despite this bounce last week, oil futures have fallen about 14% this year. Production in the U.S. may also continue to slow, as drilling costs are expected to rise, which in turn will lower margins and returns.
“At present, declining costs for drilling, water handling and well design are offsetting inflation on the pressure-pumping, proppant and steel side,” said Energy Aspects. “However, come 2018 the impact of cost inflation is likely to rear its head.”
Despite last week’s data, some still say that the activity was an outlier that was impacted by bad weather.
Traders and investors are also keeping an eye out for the ongoing friction between Qatar and other Arab States. Qatar remains defiant that it isn’t aiding Iran-based terrorism movements, and although the dispute will likely remain verbal and political, escalation of tensions could jeopardize the OPEC deal.