For the first time in a year, the number of rigs drilling for oil has risen for six straight weeks. Coincidentally, last year’s increase occurred in July and August as well. How one interprets that coincidence pretty much determines whether you’re a bull or a bear on oil.

U.S. production was down by just over 1 million barrels a day last week ,according to the U.S. Energy Information Administration (EIA). That’s roughly equal to the four-week average decline as well.

There are a few of things to keep in mind as the U.S. onshore rig count rises. First, last week’s rig count increase is primarily the result of crude prices about eight weeks ago. That’s how long it takes to get from a decision to add a rig to actually adding the rig in the field.

A second thing to remember is that new drilling is primarily happening in two locations: in the Permian Basin of west Texas and southeastern New Mexico, and in the Eagle Ford in south Texas. And within those basins producers are going after the so-called sweet spots, where their testing tells them that the odds of producing a lot of oil quickly are best.

Another thing to keep in mind is that horizontal drilling and fracking technology has improved a lot in the past few years, due at least in part to the low price environment. Longer drilling laterals and more frequent fracks on those laterals has driven production costs lower.

U.S. commercial inventories of crude oil were 5.8% higher year over year through the week ending July 29. Commercial inventories of gasoline are up 9.9%. The EIA report showed that U.S. consumption of gasoline totaled about 9.8 million barrels a day last week, a number that is roughly consistent past summer season consumption.

The gasoline stockpile totaled 238.2 million barrels on June 29, 28 million barrels more than last year and 31 million barrels more than in 2014 at the same time. That’s a 24-day supply at current consumption rates. Last week the gasoline stockpile dropped by 3.3 million barrels, about a third of one day’s consumption.

As we noted in our rig count report, hedge funds have piled up short contracts over the past two weeks. According to a report at Reuters, in gasoline futures and options the hedgies have established a net short position of about 5 million barrels (5,000 contracts of 1,000 barrels). This is “exceptionally rare” and the largest net short position since the Commodities Futures Trading Commission began tracking in 2006.

Domestic crude oil production has dropped back from an all-time high of 9.6 million barrels a day in June of last year, but remains roughly at the point it reached 1986 when production last approached 9 million barrels a day. Combined with elevated gasoline stockpiles a significant price recovery is not in the cards.

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