Crude oil prices continue to feel pressure from a rising U.S. dollar and rising rig counts but the long term outlook for the global oil market is looking ever more scary. As the oil industry continues to contract, the investment in oil for the long haul continues to retrench. While we are focused on what we are calling oversupply due to an uncertain economic outlook, we continue to see a long-term outlook that will mean sharply higher prices down the road.
Baker Hughes reported the number of active U.S. rigs drilling for oil increased for the fourth week in a row putting more pressure on oil on the perception that the U.S. energy industry is making a comeback. While the active U.S. oil rig count rose 14 to 371 last week, U.S. oil rigs are 288 oil rigs lower than one year ago levels.
Even though we are seeing a pop in U.S. oil rigs counts, oil field service giant Schlumberger doesn’t believe that anything changed fundamentally for the oil producers in what they call the most serious industry downturn on record. They are warning that the short-term improvement in the oil industry is due to a redistribution of profits and cash flow that kept producers alive and not any long-term future change in investment trends. They still see a "significant" global supply deficit in the future despite modest improvement in recent oil rig counts.
Oil workers are not feeling the rebound excitement. The Wall Street Journal reported last week that energy companies continued to cut thousands of jobs during the second quarter, even though many chief executives are now voicing optimism that the oil market crash is ending and a rebound in drilling is afoot. The Wall Street Journal says that among the recent job cuts were 8,000 employees from Schlumberger and 5,000 from Halliburton.
FMC Technologies, which makes offshore oil equipment, cut 1,000 workers in the spring and summer. ConocoPhillips, one of the biggest U.S. oil producers, confirmed another 1,000 employees will be let go by the end of September. This brings global energy jobs lost during this downturn to more than 385,000 people.
We did not see an upturn in natural gas rigs last week as they fell by one as demand for natural gas may be hitting records right now. Natural gas should make a test of the $293 resistance.
In the meantime, oil will focus on the Federal Reserve this week. The strength in the dollar as the Fed drops hints that a rate hike may be in our future is a headwind for rising oil prices. Yet, can the Fed deliver?
There are still supply issues in Nigeria and Libya that we will keep an eye on.