The number of active oil and gas rigs in the United States rose by 13 on Friday, according to oilfield services provider Baker Hughes. The total oil and gas rig count in the US now stands at 870 rigs, or 450 above the count a year ago.
Oil rigs increased by 9, while gas rigs bumped up 4.
This week marks the fifteenth straight build for oil rigs (+175 or +33.5% since January 13). While gas rigs haven’t enjoyed the same persistently ascending trajectory week to week, they have climbed 10 of the last fifteen weeks, for a total gain of 35 (+25.7%).
Rig Factoid: The largest three-week gain in the number of active oil rigs in the US over the last decade was April 1, 2011. The rig count spiked 26 that week, for a total of 76 rigs gained over a three consecutive-week period. WTI spot price that day was $107.55. Total number of active oil rigs that week: 877.
So far this year, traders have watched, mostly likely in horror, at the tug of war between OPEC’s efforts to “rebalance” the market, and U.S. shale’s efforts to take full advantage of that rebalancing effort. For every depressing API or EIA report about the lackluster results of the global inventory drawdown efforts, and for every rig count report that shows U.S. Shale keeps picking up steam, OPEC’s obedient compliance to the cuts and talks of an extension appeases at least enough of the masses to generally keep oil above $50.
Rig Factoid: The largest three-week loss to the number of active oil rigs in the US over the last decade was for the three-week period ending February 13, 2015. The rig count dipped 84 that week alone, bringing the total three-week loss to 310. WTI spot price that day was $52.66. Total number of active oil rigs that week: 1,056.
Many have cautioned U.S. Shale drillers that bringing too much on too quickly could keep prices depressed, or depress them to a greater degree. The chart below, looking at the weekly price (Fridays) of WTI and the rig count over the last decade does show a pretty tight correlation to price (lower correlation is seen when price swings are sharp and dramatic), but also shows that the price of WTI pulls along the rig count, and not the other way around—at least not long term.
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Data source, US Energy Information Administration, Baker Hughes
What’s more, the response time for rigs in reaction to WTI appears to be about six months (some would suggest a lag of a quarter), which is shown here, when we kick out the price of WTI six months.
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And for whatever forecasting is worth, carrying out the line for the last six months of price data, for which it is logical to assume that on a broad scale rigs will follow, the number of rigs are likely to hold fairly steady over the next six months. While OPEC’s efforts to undertake an extension is sure to have an effect, it may be on a significantly delayed time table. Related: Why Is China Buying Up These Unprofitable Natural Gas Assets?
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As for individual basin activity, the Permian added two rigs this week, and has enjoyed gains every week in 2017 save a single week where it lost one in mid-March. In 2017 alone, the Permian has put into play 75 additional rigs, for a gain of 28%. This trend is largely expected to hold, the Texas Railroad Commission issuing 1,310 new oil and gas drilling permits to shale producers in the month of March—up from 511 in March 2016. This is in contrast to well completions, which declined 60% in March over the year. The data suggests that while March completed fewer wells, a staggering number of permits have been issued, signaling an increase in drilling activity is on the horizon.
The next largest play in the U.S., Eagle Ford, has 36 more active oil rigs since the beginning of the year. While the actual number of rigs is fewer, the percentage-wise increase of 90% this year is more significant than the beloved Permian.
At 1:00pm before data release, WTI was trading at $49.19 +.45% with Brent trading at $52.03, up .41%. Both benchmarks started to dip within 15 minutes of the data release.
By Julianne Geiger for Oilprice.com
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