Oil Rig Count Fell in July - What's Next For Oil Prices?

Last week saw the international Rig count go down again. Rig count is a way to measure increases and decreases in near term oil supply; the more rigs the more crude oil that will be drilled. Internationally the Rig count for July 2015 was 1,118 which is lower by 264 from the count in July 2014. In the US, the count increased by six rigs to 670 but this is still far away from a high of 1,609 rigs reached in October last year.

Today at 14:30 GMT will see EIA data released for crude oil stocks. Last week’s figure saw a reduction in supply and was -4.407 million and this week’s expected forecast is also negative at -1.4 million. A larger than expected negative number means reduced supply and could send the price of crude oil up sharply whilst a substantially higher positive number could send crude oil on its way back down again. 

Looking at the day chart we can see a two candle reversal pattern formed over the previous two trading sessions, blue area. This is the first time this type of pattern has formed since price returned to its bear trend in June. Price is also extremely far away from the Ichimoku cloud, by approximately 20%, this is a sign that the market may be well oversold at this point. 





EIA stock data has been negative for most of the past 12 weeks and oil price has been falling, considering the reduction in Rigs internationally and such a low current price there could be room for a correction upward.

Trading Crude WTI Oil

With the prospect that there could be more volatility in the market after today’s data, one way to take advantage of this is to buy a straddle option strategy. This consists of buying a Call and a Put simultaneously with the same strike rate and expiry date and for the same amount. As you can see from the ORE Web-Platform 'add new position' page below there are two lines, one to buy a Call option and the other to buy a Put option. This total cost to buy this position is $165.68, that is to buy a Call and a Put with a strike rate 43.65 for 100 barrels and 5-day expiry.




If WTI Oil prices moves far enough, either up or down, by expiry on Monday 14th August 2pm GMT the position may return a profit. By clicking the Scenarios button you can evaluate the positions payout over a range of oil prices. Below is the Scenario chart and table, you can see the position is at break-even (by expiry) when oil price is 41.99 or 45.31 per barrel. If oil remains in this range the position will make a loss, if oil breaks out of this range the position will profit. 




If however you think there will be less volatility, EIA stock data will be pretty much as expected, and the market will remain at these new lows for the next 5-days to take advantage of this scenario you may sell a straddle strategy. This consists of simultaneously selling a Call and a Put with the same strike, expiry and amounts. As can be seen from the screen shot below, this will earn you a maximum profit of $152.96 as long as both options expire worthless.




If WTI Oil prices trade within a range until expiry on Monday 14th August 2pm GMT the position will return a profit. The Scenario chart and table below, shows that the position will make maximum profit if Oil price expires at the 43.65 strike. However, if oil breaks-out of the range a loss will be made, this loss can be managed using stop-loss orders. 


To practice trading option strategies and analyze payouts open a FREE demo account. 

1. http://www.worldoil.com/news/2015/8/08/us-rig-count-rises-by-10-international-count-down-28