• 24 hours PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 1 day Energy Regulators Look To Guard Grid From Cyberattacks
  • 1 day Mexico Says OPEC Has Not Approached It For Deal Extension
  • 1 day New Video Game Targets Oil Infrastructure
  • 1 day Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 2 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 2 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 2 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 2 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 3 days Conflicting News Spurs Doubt On Aramco IPO
  • 3 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 4 days China To Take 5% Of Rosneft’s Output In New Deal
  • 4 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 4 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 4 days VW Fails To Secure Critical Commodity For EVs
  • 4 days Enbridge Pipeline Expansion Finally Approved
  • 4 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 5 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 5 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 5 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 6 days Aramco Says No Plans To Shelve IPO
Alt Text

Oil Prices Rise Amid Falling U.S. Rig Count

Oil prices inched higher on…

Alt Text

Footloose Iraq Cannibalizes Saudi Market Share

OPEC’s de-facto leader Saudi Arabia…

Peter Tertzakian

Peter Tertzakian

Peter is an economist, investment strategist, author and public speaker on issues vital to the future of energy. He has clocked over 30 years of…

More Info

Global Rig Count Suggests An Oil Price Rally Is Near

Oil Rigs

Like us humans, it seems that oil markets have two ears.

Going in one ear, is the squeal of the resurgent U.S. oil industry. In the other ear, it’s loud chatter about whether or not OPEC and friends are complying with production cuts.

In between the ears, in the minds of the traders, the price of a barrel of oil reacts to every sound, most recently tumbling on the back of a noisy EIA report.

Occasional bullish shout outs of unrelenting consumption growth, scary geopolitics and declining production may be heard. Others growl like bears that GDP is weakening in key developing economies, there is too much oil in white storage tanks everywhere (there is) and so on, ergo prices should go down. On Wednesday, the bearish din finally drowned out the bulls, shaking the market out of its fifty-to-fifty-five price trance.

But what in the world of oil is the noise that’s most relevant, beyond a walking rig in Texas and a war-damaged valve in Libya – something that really tells us about where the industry is headed (or not)?

One thing that’s drowned out in the information commotion is the rig activity in various regions beyond the U.S. It’s time to revisit this data, which is a real-time whistle that tells us about the economic viability of drilling for more oil at $50-a-barrel worldwide.

No wonder we’re not hearing much. The sound of rising masts and grinding bits is pretty weak beyond the U.S. and Canada.

Latin American oil-targeted activity has levelled out at just over 150 rigs after dropping precipitously from a pre-crash peak of 395. The signal is pretty clear: Not much works at fifty bucks a barrel between the Rio Grande and Patagonia. Related: How Much Further Can Oil Prices Fall?

Rigs in the Asia-Pacific region have stopped falling at the 135 mark too, down from 195. Not very exciting and hard to make a case that current oil prices are enough to open corporate wallets, even after all the hoopla about declining service costs. Ditto for European and African drilling; both regional oil-targeted rig counts are holding in the 40 to 50 range with no upward inclination in the absence of higher prices per barrel.

Most interesting is the Middle East region. Drilling was active in the deserts through to the end of 2015, which contributed to the mother of all price wars in early 2016. Over the past 12 months a gentle decline in activity is noticeable, off an average 15 rigs down to the 290 mark. Capital is being husbanded in these countries, recognizing that $50 a barrel doesn’t kick off enough cash flow to warrant incremental re-investment. Stated more bluntly, state-owned oil companies don’t have a lot of extra money for drilling after the necessity of paying cash dividends to their states. (Figure 1)

(Click to enlarge) 

Other international drilling tidbits include trends in OPEC versus non-OPEC. The 12-member cartel’s activity is down nearly 20 percent from 2014 levels and holding for the moment around 300. Non-OPEC activity (excluding U.S. and Canada) is still falling but not as steeply as last year. (see Figure 2)

(Click to enlarge)  Related: BP Shares Surge On Reports Of Exxon Takeover Approach

The most notable downward trend right now is in offshore drilling. Peaking at 340 oil-and-gas platforms bobbing in seas and oceans, the count has steadily fallen to 200 over the past two years. Indications are that it’s going lower, a trend that is consistent with the understanding that long-term upstream megaprojects are passé in the face of short-cycle onshore investment. So it’s no surprise that the trend on dry land is pointing up. (see Figure 3)

(Click to enlarge)

Yes, rig productivity has increased many-fold over the past couple of years, but that’s mostly a North American phenomenon. Such gains are the prime reason that only two places in the world where the rig counts are up meaningfully are the U.S. (up 55 percent) from this time last year, and Canada (up almost 54 percent).

Too much oil in inventory and prolific productivity in places like Texas will continue to resonate loudly over the next several months, potentially putting downward pressure on price again. But the weak background noise of global drilling activity is a distant alarm for shortfalls in future oil supply—all in the face of still-robust year-over-year consumption growth.

So what falls on deaf ears today may be music to the market’s ears tomorrow.

By Peter Tertzakian for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • J rad on March 12 2017 said:
    Let me guess, your investment firm is about to take it in the shorts on your long positions. The latest run was always a suckers rally propped up by Wall Street money that wasn't based on reality. You still have to account for capacity in the market whether it is running or not.
  • Tom on March 12 2017 said:
    You assume that the demand side of oil won't be a problem and that more productive US/Canadian oil won't be able to keep up. So how come that we had a decline in rigs over the past 18 months or so and yet have the oil glut and inventories at record hight?

    Call me old fashioned, but I think that oil futures are a tried and tested means to deal with future oil prices. The point about rigs is not, that they decline in the TODAY'S market price action, the point is, that nobody seems to put them up at the price people are willing to pay in the FUTURE.

    I can't really explain why futures don't move more - other than that the market doesn't think there will be tremendous future growth of oil demand and potentially even a decline in oil demand. Optimists would say the market is plain wrong, less optimistic people would point to an expectation of a recession (temporary decline) or energy saving mechanisms (more long-term) or even permanent decline in demand due to renewables (that would be kathastrophal for the oil price). Whatever it is, currently the market does not want to pay more for today's oil prices and not for oil in 2025 either.
  • Clyde Boyd on March 13 2017 said:
    HAhahahaha. The glut is growing, more oil coming on board. Prices are dropping. Traders will take a bath. No amount of oil price happy talk will stop the glut.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News