Although there's been a lot of back and forth about the whether the U.S. "shale boom" has been overblown, this week shows that oil production in the U.S. continues to flourish, although not at the same speeds as the last few months. Last's week's oil and gas rig count, with a surprising decrease of one rig in the U.S. after 23 straight weeks of gains, led many wishful thinkers to believe that the shale bubble may have finally burst. Today's rig count, however, makes it look as if last week was not an omen, but a fluke, with a full dozen new rigs in the U.S. alone.
In the first eight weeks of 2017, oil rigs increased by an average of 10 per week in the U.S, rising to an average of 11 rigs per week in the following two months. As a relief to many, the eight week period ending on June 16 showed an average weekly gain of just 7 oil rigs, suggesting that the shale boom, though it continues to grow, is at least slackening in pace. This week follows that trend, with an increase of just 7 oil rigs and 5 gas. Now the question is: Will U.S. oil companies continue to deploy rigs, even with oil prices stagnating around $45 per barrel, or have we peaked?
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Many investment giants are banking on the former. Last week Goldman Sachs downgraded their projected 3-month average of $55.00 per barrel of WTI crude to $47.50, and analysts warn that prices could bottom out at as low as $30 per barrel before producers start to back off on drilling. Exacerbating…
Although there's been a lot of back and forth about the whether the U.S. "shale boom" has been overblown, this week shows that oil production in the U.S. continues to flourish, although not at the same speeds as the last few months. Last's week's oil and gas rig count, with a surprising decrease of one rig in the U.S. after 23 straight weeks of gains, led many wishful thinkers to believe that the shale bubble may have finally burst. Today's rig count, however, makes it look as if last week was not an omen, but a fluke, with a full dozen new rigs in the U.S. alone.
In the first eight weeks of 2017, oil rigs increased by an average of 10 per week in the U.S, rising to an average of 11 rigs per week in the following two months. As a relief to many, the eight week period ending on June 16 showed an average weekly gain of just 7 oil rigs, suggesting that the shale boom, though it continues to grow, is at least slackening in pace. This week follows that trend, with an increase of just 7 oil rigs and 5 gas. Now the question is: Will U.S. oil companies continue to deploy rigs, even with oil prices stagnating around $45 per barrel, or have we peaked?
(Click to enlarge)
Many investment giants are banking on the former. Last week Goldman Sachs downgraded their projected 3-month average of $55.00 per barrel of WTI crude to $47.50, and analysts warn that prices could bottom out at as low as $30 per barrel before producers start to back off on drilling. Exacerbating the issue, some U.S. oil companies are locked in at $50 per barrel for the duration of 2017, meaning despite all warnings, they'll happily keep pumping crude into the already saturated market until at least the end of the year.
Altogether, there are now 952 rigs active oil and gas rigs in the U.S., more than double the count on this day last year. This week's biggest gains were in Oklahoma's Cana Woodford, with 4 new rigs. Alaska, Louisiana, and Texas also gained wells this week, while New Mexico and Utah each lost one. Surprisingly, the mighty Permian, the undisputed leader of the national shale boom, lost a rig this week, down from their massive sum of 370 wells to 369.
This is not good news for the already fluctuating market. Indeed, prices were down on Friday, with WTI trading down 2.81% on the day at $44.24. Brent was down 2.85% at $46.74 at 12:17pm EST. Following years of nosediving oil prices and a mushrooming crude glut, it's concerning to see increase in production continue to skyrocket, against the warnings of OPEC and the efforts put forth in their historic November pact.
OPEC delegates have said that following last year's cuts, they will not be making any additional efforts to tamp down crude supply any time soon. However, this month's OPEC meeting in Russia could see continued pressure from investors, frustrated with the seemingly endless global glut, potentially pushing hard for reconsideration. Until then, however, oil prices and waffling investors will continue to languish in uncertainty.
While shale gas is facing similar woes after years of downturn and bottomed-out prices, the future looks a little brighter. While the U.S. also has a huge gas glut and competitive production is ramping up drilling in the dual pumping powerhouses of the Marcellus and Permian basins, there is still hope for investors.
The U.S. is pushing hard to open up new markets for natural gas in Europe, and the prospects are looking promising. Although Russia has monopolized the gas markets for years, many countries are open to moving away from ties to the volatile, totalitarian state.
Just last month the U.S. sent its first ever international shipment of liquefied natural gas to Poland, and next week the U.K. will receive its first shipment as well. The rest of Europe is not far out of reach, as nations collectively try to wean themselves off of Russian pipelines in search of a more reliable supplier.
While the oil rig counts' overall slowing acceleration looks promising for a continued comeback in oil prices, this week's 12-rig rebound and the uncertainty of OPEC's projected production creates a murky playing field for investors. In contrast, the natural gas market, once dismal, finally looks like it's taking a turn for the better as the U.S. pushes its way into thirsty global markets.
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