rig count commentMy guess is that the oil rig count will continue to come off until we achieve approximately a 2/3rd reduction from its high. That high point was reached Oct 10th 2014 at 1609. We currently sit at 963. The exact figure to reach 66.6 % is 1071 which would mean 108 more rigs pulled off line. Some of these rigs will move over to the gas side so we should expect a small rise there, but I do not think it will be a significant number in these early stages, - by that I mean somewhere in September. North American refineries (in the main) are geared for heavier crudes. Of course they can accommodate the lighter varieties but price and end products are definitely a factor when it comes to inputs on refinery runs. If the U.S. does finally get around to approving crude exports (wonderful idea) then exporting some of these burdensome supplies of the lighter crude would be a great safety valve for the industry. Were that to happen in the near term it would of course change everything. But at present it’s an unlikely scenario. I won’t mention pipeline constraints because everybody knows their ultimate effect on rig counts and oil prices generally. Pipeline issues take much longer to rectify.
We all know that shale well decline rates are rapid and the longer we sit at the current level (that even now is remarkably low) and remains here possibly for a few months longer there will be a lot of catching up to do to replace declining production from those aging wells. So if the Saudis keep pushing their crudes into the market to keep WTI prices on the defensive it is likely the oil side rig count will continue to move a bit lower. But the longer we sit here at these low rig count numbers the better it is for later down the road.
In fact, we owe a great debt of gratitude to the Saudis making the offer of their oil at price the world simply couldn’t refuse. The Saudis are expanding the oil market and allowing global consumers to reacquaint themselves with their oil addiction (as in days of old). We have to thank them because it wasn’t our precious oil that was offered to the world at these prices to reinvigorate demand. We turned our taps off. We’ll join the party later………