Energy Prospectus

The current running rig count of 809 in the United States is the lowest in five years, but analysts from Raymond James Equity Research believe we haven’t reached the trough yet. Not even close.

In a market report issued on October 5, 2015, the firm believes lower-than-expected drilling activity and a delayed rebound in commodity prices will drag the U.S. rig count to a low of 595 (just 400 drilling for oil) in mid-2016. The estimate is 28% below its estimated average for 2015 – far greater than its initial reduction estimate of 9%.

http://www.oilandgas360.com/raymond-jam ... 5-26401157

If the number of rigs drilling for oil drops to 400, we will see U.S. oil production dropping by over 150,000 BOPD month after month. It takes an estimated 1,000 onshore rigs drilling for oil in the U.S. just to keep production flat. U.S. oil production is now falling by 100,000 BOPD each month. IT WILL TAKE A MASSIVE AMOUNT OF CAPITIAL TO REVERSE THE DOWNWARD TREND. IT IS NOT AN OVERSTATMENT TO SAY THIS A THREAT TO OUR NATIONAL SECURITY, BUT WASHINGTON IS SO SCREWED UP IT DOESN'T EVEN NOTICE. - Dan

An element of contango factors into the deepening rig count trough – Raymond James believes the steep pullback will result in pressure pumping activity “surging over 80% in 2017.” The outlook for offshore and international activity is not as promising, as the recovering onshore market and the cancellations of longer lead time projects will keep a lid on any kind of production gains.

A note from Wells Fargo Securities believes increased spending pullbacks and the massive layoffs may cause “long-term damage” to the industry, but the overshoot could lead to a quick oil price rebound in the not too distant future.
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My take is that it is starting to sink in on Wall Street that oil supply/demand will be much tighter in a few months. The U.S. is not the only place where capex has been slashed and production is falling.