Lowest decline in US drilling activity since December 2014

Brent has climbed to just shy of $68 per barrel this morning despite a firmer US dollar and is thus nearing the high it achieved mid-last week. Fighting in Iraq and Syria is being blamed for the price surge. 

Speculative financial investors will doubtless view this as a good opportunity to make further purchases even though it is likely to have virtually no impact on oil supply, says Commerzbank. The steep rise in oil prices in recent weeks has further slowed the decline in the oil rig count in the US. 

According to Baker Hughes, only eight oil rigs were shut down last week - the smallest weekly fall since December 2014. At the Eagle Ford shale oil play, the count increased again for the first time since March, whereas the Permian Basin shale oil play saw a drop in the oil rig count by three after an increase in drilling activity was reported in the previous week for the first time this year. 

The decrease in drilling activity by more than half since the beginning of the year to its lowest level since August 2010 has not yet been reflected in the hard production data. Oil production in North Dakota actually continued to increase in March and almost reached a new record level of 1.2 million barrels per day. 

One key factor in this is likely to have been played by oil rigs being put into operation that had previously not quite been completed. Their number fell by 20. In view of the significant price rise, almost completed oil rigs (known as the "fracklog") are likely to have been put into operation in the meantime, with others to follow in the next few weeks, thereby preventing any noticeable decline in oil production. 

Considerable correction potential for the oil price is  observed because it has been driven up by the expectation of falling US supply.