Oil prices bounce as the trade looks to a Brexit poll that suggests the “stay" campaign may be gaining momentum. It is becoming clear that if the UK votes to stay, then oil prices should move much higher. Sure, it might have moved even higher still if it were not for the Brexit drama but the fundamentals behind oil are still favoring higher prices.
Even with Friday’s increase in oil rig counts it doesn’t seem to suggest that U.S. oil output will stop its decline. Baker Hughes reported that the oil rig counts rose for the third week in a row by 10 but of those, 7 of were vertical rigs. They are more conventional rigs that won’t add much more oil in the short term and we will continue to see shale oil rig declines. Over all oil and gas rigs are still 433 lower than a year ago.
Natural gas rigs went up by 1 over the last week. That will not be enough to stop the decline in natural gas production. We have seen readings of about 68 to 68.5 bcf/d which with the current heat wave, won’t be enough to substantially slow injections. Super hot temperatures are already causing electricity problems in the West and we could see those problems in other parts of the nation as natural gas is now the primary power generational force in the country.
Oil prices are continuing to force the hand of oil producers. Bloomberg News is reporting that Russian President Vladimir Putin is considering selling 19.5% of the largest state oil company Rosneft (MCX:ROSN) to Indian and Chinese companies. The amount of the potential deal is estimated at 700 billion rubles, or $11 billion. Russia would prefer to carry out a joint deal with the two countries. If successful, this sale could set the record for privatization of Russian state property.
In Nigeria there is a report that oil workers are ready to go on strike. The Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, have threatened to shut down operations and activities in the nation’s oil and gas industry if some employers in the industry do not stop their anti-labor practices. This comes as rebels continue to threaten pipelines.
We are still very bullish in the long term. As major oil companies continue to make cut backs, the demand outlook is rising. Natural gas is also very bullish especially if we get the heat that is being predicted.