As if to rub salt in the wounds of the US shale industry, Middle East OPEC oil rig count has jumped by 19 rigs to 155 units in February 2015 setting a new rig count record for the region. Since 2005 the supergiant oil fields of the region developed symptoms of mortality and increased drilling has been required to combat natural production declines in order to maintain production at static levels.
Figure 1 Middle East OPEC oil rig count for Saudi Arabia, UAE, Kuwait and Qatar. Baker Hughes is not reporting data for Iran and activity in Iraq is affected by ongoing conflict. While the rest of the world is heading for the drilling exits these four Middle East countries are preparing to expand market share. All data from Baker Hughes.
Figure 2 The International oil rig count (excluding N America) has begun to fall and this will inevitably lead to declining oil production. The decline in drilling will in fact be more pronounced than shown here since in offshore areas like the North Sea, rigs are on long-term contracts and companies are currently “stacking” these rigs. A significant part of the drilling cost is men and materials and many companies operating offshore are simply choosing to not use rigs that they have paid for.
Figure 3 US oil rig count continues to plunge and total rigs will soon reach the level of the 2009 lows. Notably gas rig count has now joined in the plunge and one is left wondering where this will leave US plans for self-sufficiency in natural gas let alone plans to export LNG. US natural gas production was still rising in December 2014, according to the most recent data I could find.
The dead cat bounce in the oil price has succumbed to gravity with both Brent and WTI down 4% on Friday. WTI is back to $45, close to its low of $44.12 reached on January 9th. If that does not hold then the industry is in for a renewed bout of extreme anxiety and pain. In yesterday’s Blowout, Roger Andrews kicked off with a story from the IEA claiming that CO2 emissions did not rise in 2014. While the IEA want to claim victory in the war against CO2 I tend to wonder if this is not symptomatic of chronic weakness in the global economy that is implicated in the precipitous fall in the oil price.
By Euan Mearns of EuanMearns.com
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