US oil rig count falls - oil price dropped too!


US oil rig count

The US rig count, a reliable indicator to reflect the scale of demand of crude oil, went down during the last few days, despite showing a recovery since the peak of the first wave of the pandemic.

It has gone down from 323 to 258, according to Baker Hughes rig count data – a significant drop.

During the same period, the US inventories also signalled a significant build-up.  This may indicate a global decline in demand of oil. Even in India, there is a drop in demand, despite the trend being the exact opposite a few months ago.

As a consequence, the oil price that showed signs of strong recovery became static again, after hitting above $45 a barrel.

Oil producing countries that rely on the commodity to balance their books finally breathed a sigh of relief with the rising crude oil prices.

Qatar, the tiny Gulf state, for instance, estimated $9.4 billion budget deficit next year – the largest since 2017, when its neighbours fell out with it and imposed travel restrictions – even if the oil price stay above $40, a barrel.

If the oil price gets into a phase of volatile fluctuations once again, these countries will be in a difficult position to when it comes to managing their respective economies.

The drop in oil price have secondary consequences too: there are millions of migrant workers from South Asia and South East Asia who make a living in the oil-rich Middle East countries.

Their remittances offer a lifeline to countries such as India, Pakistan, Nepal, Sri Lanka, Bangladesh, the Philippines and a few more. That means these countries will be affected directly from falling oil prices.

If oil price stays around $50 a barrel, the oil producers in the Middle East and in the rest of the world may partially manage their economies in the hope that thighs would turn better at some point in the near future.

The era of $100-a-barrel, however, is over; only they can hope for is a reasonable value between $50 and $100 that protects both the producers and consumers alike at turbulent times.

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