Crude oil prices rallied after China cut interest rates and U.S. rig counts continued to fall. This comes after hedge funds put on the biggest bull position in 8 months.
China made a big move, aggressively cutting interest rates which will increase their demand for oil. The cut was one quarter of a percentage point and the largest cut since the financial crisis. The move comes after the China bank tried to clamp down on margin trading and tried to encourage short selling of stocks. China's seemingly contradictory moves may be a signal of larger problems in the Chinese economy and banking system. That may limit some upward momentum as U.S. oil output is again coming into question as U.S. rig counts fell for a record 19 straight weeks. The fall, though, was less than the week before as oil rigs declined by 26 rigs to 734—that means oil rig counts have fallen by 55% since the peak last October.
Natural gas rigs also fell by 8 rigs to 217.
Oil hedge funds are starting to see things my way. We were ahead of the curve, calling for a new era of low gas and oil prices while many were still bullish. Then after the historic break in price we called the low at 44 and became bullish. When prices collapsed there were consequences and we will see those consequences play out. We have seen oil rebound over 30% from the lows and we see signs of lower U.S. production and of greater demand. Refiners in the U.S. are running at a record pace for this time of year. We think low prices are curing low prices, but we also are seeing more supply risk as well.