Why it's so hard to pick oil's bottom

Just this week, global oil prices have dropped almost 10 percent amid mounting worries about a supply glut. US crude closed at USD 47.93 per barrel Tuesday, the lowest settlement since April 2009, down USD 2.11 on the day. Benchmark Brent crude fell to a session low of USD 50.55 a barrel, its lowest since May 2009, in late afternoon trade Tuesday in the US, down more than 55 percent from its mid-June level.

Alternative tools

One tool Keenan is watching is trade in put options -- or contracts giving the buyer the option to sell assets at a particular price by a set date.

"In the wake of this recent price fall, they've been quite accurate lead indicators of where prices are going to go," he said, noting many puts are being bought on Brent at $40.

"Option positions established in Brent tend to be more purposeful and done by quite sophisticated investors because its slightly less liquid and so quite revealing sometimes of where we're going to go," he said. Beyond that, he's looking to less obvious indicators, such as U.S. employment data, broken down into sectors such as pipeline production, oil extraction and oil services.

"If we start to see changes in these profiles, that would be suggestive certainly that these companies are looking to rein in production and production growth is going to slow," he said.

Keenan's also looking to US railcar traffic, as shale oil tends to be produced in land-locked regions, away from main pipelines and is often transported by rail. He also is looking to oil-drilling rig counts and production per rig.

Misleading?

But some note looking at rigs and production spending might not yield expected results.

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Despite expectations North American oil exploration and production (E&P) companies could cut capital spending by as much as 40 percent if oil remains below USD 60 a barrel, "most E&P companies have high growth profiles, and can cut capital significantly without trimming their current production," Moody's said in a note Tuesday. It cited data from the US Energy Information Administration estimating U.S. oil production will increase by 700,000 barrels a day this year compared with 2014. Moody's only expects a pronounced impact from lower capital spending will emerge in 2016.

Moody's also cited another factor that may limit the readability of rig counts for oil prices: what it called "a tidal wave" of new rig deliveries.

"Many of the existing rigs, particularly jackups, will have to renew contracts in 2015 at significantly lower rates," Moody's said. It expects even larger oil-service companies will need to grant price concessions to customers in upcoming contract renewals to maintain customer relationships and take market share.

Those declining rig costs could persuade oil producers to maintain rig counts and continue producing despite lower oil prices.