The oil rig count rose by one, slowing bullish oil momentum that had been building on hopes of a OPEC/non-OPEC production freeze and the mystery of some missing barrels.
The International Energy Agency lost about 800,00 barrels of oil last week, and that suggests that perhaps demand is stronger than they think or production is falling faster than they think. The last time there were substantial missing barrels was 1998 right before the super cycle oil bull market started.
U.S. oil rigs rose by one to 387, snapping a 12-week streak of declines, while gas rigs fell by five to 89, bringing the total count of oil and gas rigs lower by four to a record-low 476. The modest increase of a whopping one oil rig seemed to stop the bulls in their tracks, as there is concern that the recent increase in prices might bring some of the shale rigs back on. Those fears are reminiscent of a year ago when shale producers brought rigs back on after a major contraction because they thought crude oil prices had bottomed. Of course after oil peaked last July after the Greece crisis, the Iranian deal to lift sanctions and the first signs that the Chinese economy might be in trouble, brought prices crashing back down to earth. The rig count then followed.
Yet one rig does not a market make. There are still signs of stress in the U.S. shale industry. They have a long way to go. The oil rig count is down 76% from its October 2014 peak and down more than 53% from this week last year. Even if we see a modest rebound, shale output will fall. The number of overall rigs are still near a record low.
Oil is also looking to Doha. Reuters is reporting that Oman has not yet been invited to a meeting in Qatar on April 17th where oil producers plan to discuss a global pact to freeze production to support prices, the Omani oil minister said on Sunday. "We have been exchanging some views with other oil producers. We have not received an invitation to attend the meeting yet, but we will attend if we receive it," Mohammad bin Hamad al-Rumhy told a news conference in Muscat.
Reuters says that OPEC and non-OPEC producers will meet in the Qatari capital Doha next month, following an initial deal in February between Saudi Arabia, Qatar, Venezuela and non-OPEC member Russia. It remains unclear whether all 13 OPEC members will attend the Doha meeting, and which non-OPEC producers will also. Oman is a small non-OPEC producer.
Long term we still feel oil is at the bottom end of a long term cycle. The blood-letting in the global energy industry is without precedent. The closest we have seen is 1997-1998 which led to one of the biggest bull markets in modern times. While it might not have seemed like a bottom back then, we found out it sure was.