Do Oil Rig Counts Matter?

In the past few weeks oil has demonstrated signs of recovery. This rally was driven, in part, by the adjustments in market expectations of a slowdown in the U.S. oil production as major oil producers have been cutting down their capex for the year and, more importantly, oil rigs have declined. But do rig count matter so much in the sense that they provide a reliable indication for the oil production or future growth in output in the near term?

The oil market heated up in recent weeks: The price of WTI oil rose by 3.7% since the beginning of the month. Brent oil grew by 6.5%. Moreover, shares of United States Oil Fund (USO) added nearly 6.3% to its value in the last couple of weeks. So USO rose by a higher level than the price of WTI. But on a wider scale, the price of USO has under-performed the price of WTI over the last two months due to roll decay.

Looking forward, the Contango in the oil future markets is likely to keep the price of USO under-performing WTI.

The rest of this analysis is at Seeking Alpha

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