After a decline of around 500 rigs since mid-March, the oil rig count may be showing early signs of stabilizing. On the other side of the equation, the U.S. Energy Information Administration (EIA) reported an increase in production of 100,000 barrels per day (bpd) to 11.1 million bpd.
With the spot WTI futures contract steadily rising (to over $40 per bbl) since its short-term bout in negative territory on April 20, oil producers may be starting to get a tad more comfortable in increasing activity in the shale pits. However, this could be a slippery slope as a quick ramp-up in production in the United States — or anywhere in the world — could send oil prices back into a tailspin.
If rigs steadily increase in the short term, this would be a bearish signal for oil prices as the industry still has a significant volume of oil sitting in inventory around the world. This must be worked down to normal historical levels before prices will be able to fully recover and remain in an uptrend.