In January the oil market sentiment has improved and prices have switched to a recovery mode, in many ways due to some progress in the US-China trade relations. Meanwhile, the drilling activity in the US declined dramatically last week, with Baker Hughes reported that the number of active rigs drilling for oil dropped by 21 to 852. It was the third straight weekly decline, which signals the potential stagnation or even decrease in shale oil production in the weeks to come.
In the longer term, there are some other factors that could support the tone in the markets. First, a potential trade deal between the US and China may boost general risk-on trades in general. Second, lets’ not forget about the geopolitical risks in Iraq, Iran, Libya, Nigeria and Venezuela. Third, the waivers that the Washington gave to eight buyers of Iranian oil expire in May, and the US Administration will hardly expend the measures which could result in supply deficit later this year. Against this backdrop, Brent has a chance to recover above $70 from the current levels around $60.