Last week, Baker Hughes’ rig count indicated a continued decline in U.S. oil drilling activity, reaching its lowest point in 29 months. Despite this trend, Standard Chartered points out that the market has yet to fully account for the slowdown in output and the cautious approach to drilling observed among major companies.
Since November 2022, U.S. drilling activity has decreased by 23%, with Standard Chartered noting a shift among large companies away from maximizing growth towards maintaining current production levels, despite the rise in crude oil prices. Over the past nine months, there has been no sustained growth in U.S. crude oil production, currently averaging around 13.2 million barrels per day. While December saw a notable increase of over 1 million barrels per day, June has shown minimal growth, with an increase of only 0.3 million barrels per day.
StanChart’s Bull-Bear index continues to favor a bullish outlook, boosted by recent data from the Energy Information Administration (EIA) which showed a decrease of 2.55 million barrels in oil inventories, though still above the five-year average. Despite this, June demand indicators remain lackluster.
In May, Brent crude oil prices averaged around $82 per barrel, down $8 from the previous month. Early June saw further declines following OPEC+’s decision to maintain output cuts through the third quarter, with the EIA forecasting average oil prices of approximately $85 per barrel for the latter half of the year. The EIA anticipates a reduction in global oil inventories through the second half of 2024, exerting upward pressure on prices.
Looking ahead, this week’s EIA data release on Wednesday will follow the American Petroleum Institute’s report indicating a 914,000 barrel increase in U.S. crude stockpiles and a 3.843 million barrel increase in gasoline inventories.
Investor uncertainty persists regarding potential Federal Reserve interest rate cuts later this year, with expectations leaning towards a possible cut in September, followed by two more in 2025. Federal Reserve Governor Lisa Cook recently reiterated the likelihood of rate adjustments depending on economic performance.
As of Tuesday evening, Brent crude was trading near $85 per barrel, while West Texas Intermediate (WTI) stood at $80.83 per barrel. U.S. consumer confidence remains subdued, coupled with slower-than-expected summer driving demand for gasoline.