It’s awfully early to start speculating, but the calendar and current trend didn’t discourage the Houston Chronicle from asking the logical (and perhaps inevitable) question: Is the increase in the international and North American rig count likely to offset OPEC’s intended production cut?
The paper reported last week that data from Baker Hughes Inc. showed that U.S. drillers added rigs for the 10th straight week to the highest level in a year.
Oil last year capped its biggest annual gain since 2009 when the Organization of Petroleum Exporting Countries (OPEC) and 11 other nations agreed to curb output starting January 1, in an effort to trim a glut of global inventory. While producers from Iraq to Kuwait say they have started to curb supply, an increase from countries such as Iran and Libya—which are exempt from cuts—could put pressure on prices.
“The higher oil price level means that drilling for shale oil is being stepped up again in the U.S.,” analysts at Commerzbank AG, led by Eugen Weinberg in Frankfurt, said in a report. “This is likely to lead to rising U.S. oil production.”
And it appears that, for now, they’re right:
- The U.S. rotary rig count from Baker Hughes was up 7 at 665 for the week of January 7, 2017. It is one rig (0.2%) lower than last year. Rig count is 261 above the record.
- The number of rotary rigs drilling for oil was up 4 at 529. There are 13 more rigs targeting oil than last year. Rigs drilling for oil represent 79.5 percent of all drilling activity.
- Rigs directed toward natural gas were up 3 at 135. The number of rigs drilling for gas is 13 lower than last year’s level of 148.
Here’s a snapshot of the rig count from recent years.
While the uptick in rigs is a positive sign, be careful not to overestimate it. The real indicator lies in production volume, not rig counts, since there are nearly 500,000 active wells that produce only nominal amounts of oil.
Year-over-year oil exploration in the U.S. is up 2.5 percent. And so the tug of war between OPEC and U.S. oil producers continues.