Energy Prospectus

The Great Lockdown created an unparalleled situation where global oil demand declined by as much as 20% in April. Not surprisingly, operators quickly shifted focus towards reducing production to manage the massive imbalance. As such, the U.S. oilfield came to a near halt with rig activity falling by 67% and reached the lowest rig count ever recorded in the Baker Hughes dataset. While this marked the fastest ever decline, it does appear that the pain of steep rig count declines is largely over. The question now becomes the shape of the recovery process. In this week’s energy stat, we will detail our view that U.S. rig activity will begin to grind higher in the coming months, and we will lay out our expectations for completions activity to far outpace drilling activity as operators look to deplete DUC inventory.

While the strip commodity price environment is certainly more supportive today than it was 60 days ago, the end result for 2020 will still see U.S. upstream capital investment down over 50% y/y at the strip. As such, we do not expect to see the rig count recovery to bounce back as sharply as it has in prior recoveries. We expect the U.S. rig count can recover from a bottom near ~250 before averaging 420 in 2021. Keep in mind, this analysis is largely based on the strip. As detailed in last week’s stat, our commodity outlook (link<https://raymondjames.bluematrix.com/doc ... c137cf.pdf>) is meaningfully more optimistic and would drive a surge in oilfield activity.