International-benchmark Brent crude oil and U.S. West Texas Intermediate crude oil are trading slightly higher early Monday, mostly in reaction to a small decline in the number of U.S. rigs drilling for new production.
Late Friday, oil services firm Baker Hughes reported a slight decline in the number of U.S. rigs drilling for new production. The number of rigs dropped by 5 in the week to January 5, to 742. This weekly number will take on added importance throughout the year because of concerns over rising U.S. production.
Additionally, rising interest rates may add to the cost of drilling. This may lead oil companies to cut back on the number of producing rigs.
With the pipeline problems in the North Sea and Libya history, investors will be paying closer attention to the U.S. production numbers. Analysts are expecting U.S. production to break through 10 million barrels per day (bpd) very soon.
Crude oil has reached price levels that are very profitable for U.S. shale drillers. This could lead to increased production as drillers try to capture as much profit as they can. Increasing supply without offsetting demand could put pressure on the markets.
Looking at the charts, WTI crude oil was having a hard time breaking through $58.99 before the North Sea pipeline shutdown and $60.00 before the Libyan pipeline explosion. All things being equal, it makes sense to me that barring any geopolitical event, prices may retreat to $60.00 to $59.00 since this area seems to be most comfortable for traders. This will only happen if the speculators who bought the breakouts decide to start taking profits.