The United States oil and gas rig count jumped by 15 this week, to its highest level since September 18, 2015, according to Baker Hughes’ latest report on domestic drilling activity.
The number of oil and gas rigs currently active in the United States now sits at 839, which is an increase of 396 year over year.
Prices seemed undeterred by the ambitions of US shale count this week, likely in part due to Canada, which lost a total of 23 rigs this week, more than offsetting the additional rigs in play in the United States.
Prior to the Baker Hughes data release on rig counts, oil prices had spiked to a one-month high less than a day after President Trump ordered missile strikes against Syrian military infrastructure in response to a chemical weapons attack for which security sources held responsible the Bashar Assad government. By 12:25pm EST, WTI was trading up almost 50 cents on the day at $52.18 and Brent trading up 0.62% at $55.23. This jump in WTI is about $1.75 more than the prices one week ago.
The number of oil rigs in the United States increased this week by 10 to 672, compared to 354 a year ago. The number of gas rigs also increased by 5 to 165, up from 160 last week and 89 a year ago.
The weekly rig count provided by Baker Hughes is an interesting animal. The data is scrutinized by traders and the oil and gas industry as a whole, and as such has the power to sway markets to the same extent as oil inventory data by the API and EIA. However, the number of rigs in production—particularly since the price of oil bottomed out in February 2016—does not necessarily correlate to production.
Instead, the rig count is seen as a reflection of industry sentiment. As prospects look up, more industry players invest in bringing new rigs online—the real mover is not the fear that more rigs translate into significantly more production, or fewer rigs equates to less production—it’s the notion that bringing on more rigs means that drillers have a positive outlook for oil.
The real market mover, therefore, is the change in the count, not the actual count itself. After all, in the most prolific U.S. basin—the Permian—there were almost 300 completed wells as of the beginning of March, producing almost 10,000 BOE per day. Compare this to March of 2014, when the Permian had twice as many completed wells but was cranking out only about 6,500 BOE per day.
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And while rig-count bemoaners chastise U.S. shale for quickly bringing more capacity online, fearing that this will limit price increases in the industry, it must be acknowledged that this is indeed the precarious nature of the free market system—as prices rise, so does industry confidence. As industry confidence rises, so do investments. As investments rise, so does capacity, and as capacity rises, production soon follows, lowering prices. Likewise, as prices fall, so does investor confidence; as investor confidence falls, so does capacity; as capacity falls, production falls, and prices eventually rise. Such is the circle of free market life. And as the wise Tracy Turnblad once said, you can’t stop the beat—even if you’re OPEC.
As has been the case for weeks, the Permian Basin saw the most number of rigs added again this week, bringing 12 additional rigs online after adding 4 last week, now at 331 versus only 142 rigs a year ago.
By Julianne Geiger for Oilprice.com
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