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United States Oil
US Oil News
The U.S. oil industry probably passed the low point in the current cycle in July and August, with drilling rates set to start increasing from September or October and production turning up from March or April 2021.
Since hitting a low in late April, when the coronavirus epidemic was raging and lockdowns were most stringent, front-month U.S. oil futures prices have progressively risen for the last 19 weeks.
Over the last 30 years, changes in futures prices have typically been followed by changes in drilling with an average delay of 4-5 months (15-20 weeks) and changes in output with an overall delay of 9-12 months.
The delay from changes in prices to drilling can be explained by the time needed for businesses to re-evaluate drilling programmes, contract rigs, move them to the well site, rig them up and start boring.
Further delays to final changes in production are due to the time needed to reach target well depth, case and cement the well, fracture the formation, install wellhead equipment, flow test, link the well up to gathering systems and start commercial output.
Every well and every cycle is slightly different, but in the last three decades cycles in futures prices, drilling rates and production have followed each other in a standard sequence with fairly standard lags.
The number of active oil rigs has been broadly stable for the last seven weeks, after plunging almost 75% between mid-March and mid-July, which may indicate the low point of the drilling cycle has been reached.
The rig count is likely to start trending higher over the last few months of the year as the rise in oil prices since April starts to filter through into business decisions and contracting.
By contrast, production is likely to continue trending lower for several months more until the end of 2020 or early 2021 before turning higher again.
Natural declines will reduce output from wells that started producing before the epidemic, while the reduced rate of drilling since then means it will not be completely replaced.
Eventually, higher prices and higher drilling rates will cause new production to make up for the loss of old output and total production will stabilise and start increasing again.
The fact U.S. oil futures prices have been steadying around $40-45 per barrel in recent weeks indicates this is the range expected to stabilise output.
But if prices continue climbing to $50 or more, drilling will accelerate further, generating a larger production increase from the second half of 2021 onwards.
US Oil Price Performance
US Oil Market Data
Overall, the bias in prices is: Downwards.
The projected upper bound is: 31.21.
The projected lower bound is: 28.56.
The projected closing price is: 29.88.
A big black candle occurred. This is bearish, as prices closed significantly lower than they opened. If the candle appears when prices are “high,” it may be the first sign of a top. If it occurs when prices are confronting an overhead resistance area (e.g., a moving average, trendline, or price resistance level), the long black candle adds credibility to the resistance. Similarly, if the candle appears as prices break below a support area, the long black candle confirms the failure of the support area.
During the past 10 bars, there have been 3 white candles and 6 black candles for a net of 3 black candles. During the past 50 bars, there have been 23 white candles and 25 black candles for a net of 2 black candles.
Three black candles occurred in the last three days. Although these candles were not big enough to create three black crows, the steady downward pattern is bearish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 28.7888. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 46.05. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 84 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -144.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 4 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 8 period(s) ago.
Rex Takasugi – TD Profile
UNTD ST OIL FUND closed down -0.750 at 29.860. Volume was 17% below average (neutral) and Bollinger Bands were 84% narrower than normal.
Open High Low Close Volume 30.580 30.600 29.591 29.860 7,281,598
Technical Outlook Short Term: Neutral Intermediate Term: Bullish Long Term: Bearish
Moving Averages: 10-period 50-period 200-period Close: 30.53 29.55 54.00 Volatility: 21 29 96 Volume: 4,964,907 5,516,798 9,773,072
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
UNTD ST OIL FUND is currently 44.7% below its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods.
Our volume indicators reflect volume flowing into and out of USO at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on USO and have had this outlook for the last 32 periods.
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