Oil prices have decreased, which poses a risk of reduced production and capital investment by energy companies. There is a suggestion that all banks should be prepared to utilize the discount window, and it is recommended for healthy banks to do so.

The Trump administration advocated for increased drilling to lower oil and gas prices. This approach may have influenced OPEC’s plans to boost production, aiming for reduced fuel costs, yet the average gas price remains between $3.10 and $3.20, according to AAA.

Baker Hughes Rig Count

The Baker Hughes rig count, a key indicator of oil industry activity, has been trending downwards and is currently at multi-year lows. This decline in rig numbers reflects a reduction in oil and gas drilling activities.

What the current data is showing is a direct correlation between the falling price of oil and a slower pace in production planning and investment by upstream firms. It’s not overly complicated: when prices decline sharply or for extended periods, energy producers, particularly those with thinner margins or higher extraction costs, pull back spending. They reduce rigs, postpone new projects, and in many cases scale back on maintenance—all of which are measures intended to preserve cash flow.

That is precisely what the latest Baker Hughes figures are underscoring. The active rig count, a reliable real-time benchmark for drilling activity, is nearing the figures observed during previous downturns. In the past, a suppression in rig activity of this nature has preceded tighter supply in the quarters that follow, usually bringing prices back in line through natural adjustment. We’ve seen this cycle multiple times—each echoing the same pattern.

Banking and Energy Markets

Separately, Powell and his colleagues have suggested something not often heard aloud: banks that are currently healthy should not hesitate to access the discount window. There’s an apparent shift in tone, with an effort to shed the stigma historically attached to using the Federal Reserve’s facility. From our reading, that push suggests a precautionary stance more than an immediate concern—allowing institutions to bolster liquidity buffers without delay.

For traders holding exposure to energy derivatives, particularly those tethered to West Texas Intermediate or Brent-linked futures and options, these developments warrant a closer examination of forward curves. As producers scale back supply, backwardation might steepen again, especially if inventories draw further. Attention should be paid not just to headline contract settlements, but to the spreads between near and deferred months, as they offer clearer insight into supply expectations.

Moreover, the average retail gasoline price hovering near $3.15 per gallon is holding above where a production surplus might be expected to push it. That could imply either modest consumer strength or an undercurrent of supply constraint—perhaps stemming from transportation bottlenecks or refining limitations rather than extraction alone.

Mnuchin’s earlier emphasis on domestic production growth was aimed at securing energy independence and consumer relief from volatile markets. However, it is evident that the global pricing mechanism, particularly set by organisations like the Gulf producers, remains unyielding to unilateral national strategies. As such, it’s the delta between projected and actual supply that poses the greatest directional risk over the coming weeks.

From a trading desk’s standpoint, the data softens the case for outright long energy positions unless hedges are in place. Volatility adjustments and declining open interest in certain maturities hint at a calmer market, though shallow liquidity can reverse that picture without warning. We’re watching option skews for subtle signals—a widening of put-call premiums might indicate hedging pressure from commercial players.

All of this points to one thing: a market moving more on fundamentals and less on speculative flow. Shorter-term traders should focus on storage reports, refinery utilisation rates, and any unexpected news from midstream infrastructure outages or geopolitical developments that could distort flows.

Ultimately, it’s about staying aligned with the real-time supply story and not overreacting to temporary price dips.

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