U.S. Shale Is On The Rocks As WTI Tests $30.00

Posted Friday, May 15, 2020 by
Shain Vernier • 1 min read

The damage is deep for the U.S. shale oil industry, as indicated by today’s drop in the Baker-Hughes rig count. The number came in at 258 U.S. oil rigs in operation, down from 292 last week. For now, it looks like American production is on the rocks while July WTI tests the $30.00 handle.

At least on the surface, North American producers appear to be in big trouble. Most analysts predict a wave of shale bankruptcies throughout 2020. This assertion is furthered by today’s drop in the rig count, the ninth straight. For comparative purposes, one year ago today the total U.S. rigs in operation stood at 987. In 12 months, the number has fallen to 339 ― a decline of 65.6%.

Despite the pain for U.S. shale, the upside is beginning to look attractive for WTI crude oil. Prices are on the rally toward $30.00 and driving higher. If the supply/demand curve shows signs of stabilization, the GAP area of $41.88-$37.33 for July WTI futures may be tested very soon.

U.S. Shale Plays Suffer Amid Strong WTI Rally

In a Live Market Update from Thursday, I outlined a short trade in July WTI crude futures. The play was a fast success, racking 20 ticks profit.

July WTI Crude Oil Futures (CL), Daily Chart

The bulls are in control of WTI and prices are on the rise. Going into next Monday’s trade, there’s one level on my radar:

  • Resistance(1): 78% Current Wave Retracement, $31.24

Bottom Line: Right now, a bullish bias is appropriate for July WTI crude oil. If values continue to rise, another shorting opportunity will set up for early next week.

Until elected, I’ll have sell orders in the queue from $31.21. With an initial stop at $31.56, this trade produces 35 ticks on a standard 1:1 risk vs reward management plan.

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