The Baker Hughes report shows a decrease of 7 oil rigs, bringing the total to 415. Gas rigs increased by 5, totaling 122, resulting in a net loss of 2 rigs overall, with a combined total now at 542.
Crude oil is currently priced at $65.42, representing a decrease of $0.61. Over the trading week, oil tested its 100-day moving average, which is now at $64.91.
Market Levels
The week’s lowest price registered at $64.76 on Wednesday. However, the market could not maintain levels below the 100-day moving average.
Overall for the trading week, crude oil prices saw a decline of $0.63, or 0.96%, from these market levels.
We see the reported drop of seven oil rigs as a bullish forward indicator for crude prices. The decline to a total of 415 active oil rigs signals that U.S. producers are remaining disciplined and not aggressively chasing higher prices with new drilling. This restraint suggests future production growth will be muted.
Historically, the current rig count is exceptionally low. For perspective, just before the pandemic in early 2020, the count was over 670, showing how reluctant drillers are to ramp up activity despite a much healthier price environment. This disciplined approach should continue to tighten the supply-demand balance in the coming months.
Reduced Supply Implications
This view is reinforced by recent government data. The U.S. Energy Information Administration (EIA) recently reported a significant draw in commercial crude oil inventories, with stocks falling by 7.9 million barrels. This larger-than-expected decrease shows that demand is already outstripping current supply, a trend that a falling rig count will only accelerate.
As Michalowski’s analysis points out, the price found strong technical support at its 100-day moving average. The failure to push below the $64.76 level indicates that buyers are stepping in on dips, creating a solid floor for the market. This technical strength in the face of falling rig counts presents a clear opportunity.
Given these factors, we believe derivative traders should consider establishing bullish positions. Buying out-of-the-money call options or implementing bull call spreads for the coming months would allow traders to capitalize on expected price increases. These strategies offer a defined-risk way to profit if crude oil rallies off this technical support and fundamental tightness.
