The number of US oil rigs on land has decreased by two, bringing the total to 576. This marks the third weekly drop in the number of rigs.

The oil market is currently experiencing changes. This is due to OPEC’s decision to increase barrel output by more than expected. Meanwhile, shifts in trade policy are adding to the uncertainty.

Natural Gas Sector Outlook

In contrast, the natural gas sector appears more robust. US supply days have fallen by approximately 18% year-on-year.

With the reduction in US oil rigs now extending into a third consecutive week, immediate attention shifts toward the broader supply-side picture. Baker Hughes data shows a steady retreat in land-based drilling activities, hinting at a conservative outlook among producers despite previously stable prices. The number slipping to 576 reflects lower confidence in near-term returns on new production, perhaps influenced by weaker margins or hesitancy surrounding storage capacity.

OPEC’s production increase, exceeding earlier expectations, may appear strange at first, especially when considered alongside the persistent trimming of US rigs. However, the group seems intent on maintaining influence over pricing by pushing more product into the market—even if at the cost of tighter margins. That move, combined with adjustments in cross-border energy policy, means short-term pricing volatility is likely to remain above historical norms. These changes, particularly trade measures affecting demand routes, place additional variables into our price estimates.

Looking at the natural gas market, supply patterns continue to diverge. A marked drop in year-on-year supply days—down by around 18%—suggests a different set of incentives. Instead of holding back, producers may be responding to gradual drawdowns in storage and more consistent offtake, especially domestic. With lower supply buffer days, we could reasonably anticipate firmer spot prices if weather events or baseline consumption shift higher.

Trading Strategy Implications

In terms of trading strategy, pricing behaviour may continue to depend less on demand signals and more on production cues. We’ve already seen reduced US rig activity acting as a strong proxy for forward curve expectations. If traders see flat or declining rig counts without corresponding price rebounds, it becomes more sensible to revise expectations for prompt-month contracts rather than back-months. That scenario may provide some risk asymmetry worth capitalising on.

Longer-dated contracts look especially vulnerable to overestimation if current OPEC behaviour continues. With expanded output now pushing physical supply higher, we should factor in downward pressure on later maturities, barring an unexpected draw in inventories. Meanwhile, spreads between contract months could widen slightly as short-term storage levels and weather models are released. Caution around overly steep backwardation is warranted—particularly if calendar spreads are moving more rapidly than warranted by underlying pipeline data.

The gas side offers a degree of confidence, at least in structure. Lower inventory levels, when mapped against current production, suggest less slack in the system. That tightness gives calendar spreads room to remain relatively firm. If we limit positioning to high-liquidity terms or near term straddles, it might offer better payout profiles than outright directional bets. Reaction to storage reports should remain immediate and well-aligned with observed draws, especially as demand remains seasonally strong.

Create your live VT Markets account and start trading now.