Oil prices have managed to recover this week following a slump amid lower US inventories and increased speculation ahead of the OPEC meeting (25 May). However, Baker Hughes data is a reminder that at these prices, shale output is bound to surge. 

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A number of active oil rigs in the US increased for the 17th straight week! Source: Bloomberg, XTB Research  

It might sound incredible but US producers added drilling rigs for the 17th (!) straight week, taking the total up by 9 to 712. There is a clear and delayed relationship between a number of rigs and US oil production so while the US output has been increasing for a while this is certain to continue. It also shows difficulties the OPEC faces as their cuts are partly transferring market share to US shale producers. While the number of rigs is nowhere near the pinnacle of the shale boom from the first part of the decade, the efficiency has increased markedly and US producers can easily pump record amounts of oil having fewer active rigs. The US shale story could be overshadowed a bit now that the market heats up for the OPEC meeting but it could limit any upside for the market. 

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A short term trend on OIL could be already bullish. Source: xStation5 

Nevertheless oil market could be enjoying a rally for now. We can see that prices moved from beneath of the moving averages that start trending upwards and could support the bulls. 

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Oil bulls managed to defend a lower limit in a channel, now it’s their chance to make a leg higher. Source: xStation5 

On the D1 interval prices could move north withing a channel after respecting a lower limit.