Oil May Head Back Under $40 In Q3; Rig Count Continues Rise

Bank of America Merrill Lynch says oil's recent recovery may be nothing more than the usual springtime rally and that prices will decline before recovering again in Q4.

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Industrial distributors and manufacturers with a reliance on oil and gas customers may have become optimistic over the past couple as oil prices have risen back to near $50 per barrel.

But a new forecast says those companies may have to endure a downward trend over the next few months.

The Wall Street Journal reported Monday that Bank of America Merrill Lynch says it expects crude oil prices to fall back to around $39 by the end of the third quarter and that the recent recovery was "nothing more than the usual springtime rally."

The WSJ notes that oil prices often rise ahead of the summer driving season, driving refineries to buy more oil to convert in to gasoline and other fuels. 

"Gasoline tends to cause crude oil prices to push higher into the peak demand season. Yet gasoline tends to have less of a positive impact on crude prices when demand for gasoline eases," BAML told the WSJ.

Still, the WSJ says BAML expects prices to later recover strongly in Q4, ending 2016 at $54.

In April, Amherst Pierpont strategist Robert Sinche said prices could reach as high as $70 per barrel by the end of 2016. Earlier this month, Superior Energy CEO David Dunlap forecasted that prices would head toward $60 by year's end.

Oil Rig Count Rises Further

Houston oilfield services company Baker Hughes said Friday that the count for U.S. rigs exploring for oil and natural gas rose by 10 this past week to 424, the third-straight week the count has increased. The streak follows a slide that pushed the rig count to a record-low 404.

That 426 number is still less than half the count of 857 active rigs at this time a year ago, but a positive sign nonetheless. Baker Hughes said last week that 337 rigs sought oil and 87 explored for natural gas.

Texas gained 13 rigs, West Virginia gained two, while Alaska and Arkansas each lost one. Arkasnsas, California, Colorado, Kansas, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Utah and Wyoming were unchanged.

Price update

WTI Crude oil prices closed Monday $49.37 per barrel at midday Monday. Prices have hovered around the high-40s for the better part of the past month, peaking at $51.67 on June 8, its highest mark since Oct. 9, 2015. Prices bottomed out below $27 per barrel this past January and February.

For industrial distributors and manufacturers, the oil rig count is arguably of more importance than the price, though the two obviously coincide. A higher rig count means more industrial products like pipes, valves and fittings, hose products, safety products and other oil & gas maintenance products needed to support those rigs.

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