Active Rig Count continues to fall - July 2
Posted: Thu Jul 02, 2020 1:19 pm
Baker Hughes' weekly report came out a day early because of tomorrow's holiday.
The STUNNING decline in the active rig count continues.
> Back in early April the "experts" predicted a drop to 400 active rigs in the U.S. by the end of Q2 thanks to the pandemic. Today the U.S. active rig count is 263.
> Baker Hughes U.S. oil rig count: 185 vs. 188 week before. < We need ~800 rigs drilling for oil just to hold production flat.
> Total oil rig count: 263 vs. 265 week before and down 700 from this time last year. < U.S. oil production went on decline in November, 2019 when we had ~900 active rigs.
> The International active rig count declined from May to June (less than I expected) and it is down 357 rigs in the last 12-months.
The weekly U.S. oil rig count has been dropping since its high for the year of 679 reported on Feb. 21.
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MY TAKE:
1. I believe the active rig count is at or near the bottom for this cycle. At least I hope so.
2. The decline in U.S. oil production will slow down as some shut-ins come back down and a few companies are now completing DUC wells. < This is only a short-term solution.
3. Upstream companies will not increase their drilling programs this year unless oil prices go A LOT HIGHER. Why? Any company that increases spending will be crushed by this market.
4. Global oil production EXCEEDS global demand for oil TODAY. The gap is being filled from bloated inventories and it will take 4 to 6 months before inventories are back to "normal" (30 days of supply).
5. "They call them CYCLES for a reason": When inventories do get back to normal the oil supply and demand will not magically stay in balance. Production will not suddenly equal demand. Production will keep falling thanks to lack of drilling and demand will keep rising thanks to a rebound in the global economy. It will take time and lots of money to mobilize the drilling rigs, completion crews and supplies necessary to ramp up production growth. A year from now the West will once again be dependent on OPEC and Russia for oil supply.
All of you should listen carefully to the Marshall Atkins interview we sent out on June 30. The seeds have been planted for $100/bbl oil.
The STUNNING decline in the active rig count continues.
> Back in early April the "experts" predicted a drop to 400 active rigs in the U.S. by the end of Q2 thanks to the pandemic. Today the U.S. active rig count is 263.
> Baker Hughes U.S. oil rig count: 185 vs. 188 week before. < We need ~800 rigs drilling for oil just to hold production flat.
> Total oil rig count: 263 vs. 265 week before and down 700 from this time last year. < U.S. oil production went on decline in November, 2019 when we had ~900 active rigs.
> The International active rig count declined from May to June (less than I expected) and it is down 357 rigs in the last 12-months.
The weekly U.S. oil rig count has been dropping since its high for the year of 679 reported on Feb. 21.
-----------------------------------------
MY TAKE:
1. I believe the active rig count is at or near the bottom for this cycle. At least I hope so.
2. The decline in U.S. oil production will slow down as some shut-ins come back down and a few companies are now completing DUC wells. < This is only a short-term solution.
3. Upstream companies will not increase their drilling programs this year unless oil prices go A LOT HIGHER. Why? Any company that increases spending will be crushed by this market.
4. Global oil production EXCEEDS global demand for oil TODAY. The gap is being filled from bloated inventories and it will take 4 to 6 months before inventories are back to "normal" (30 days of supply).
5. "They call them CYCLES for a reason": When inventories do get back to normal the oil supply and demand will not magically stay in balance. Production will not suddenly equal demand. Production will keep falling thanks to lack of drilling and demand will keep rising thanks to a rebound in the global economy. It will take time and lots of money to mobilize the drilling rigs, completion crews and supplies necessary to ramp up production growth. A year from now the West will once again be dependent on OPEC and Russia for oil supply.
All of you should listen carefully to the Marshall Atkins interview we sent out on June 30. The seeds have been planted for $100/bbl oil.