US Onshore Drilling Rigs Reach Their Bottom Point
With the recent uncertainties in the global oil market, much has been made of the changing numbers of drilling rigs, both onshore and offshore. The number of oil rigs globally is recognised as an early indicator for oil production. With oil supply outstripping demand, numbers plummeted over the first quarter of 2015, but there are clear indications that the situation has begun to settle in the industry and that both booms and busts worldwide are beginning to stabilise. Many experts are predicting that the drop in US land drilling rigs has now bottomed out and that recovery is on the horizon. Questions remain, however. Is this change merely part of a natural cycle or, more worryingly, representative of the industry’s direction as a whole?
Cyclical or Bottoming Out?
Whether the dip in the number of US drilling rigs is cyclical or irreversible depends largely on the price of WTI oil, which is precariously balanced due to US oil production and storage trends. The number of oil drilling rigs in the US has dropped for 18 consecutive weeks, as production companies have reduced spending due to low oil prices. Most of the closures have been in the Permian and Eagle Ford basins, key areas for shale production. Recent figures suggest that the loss of rigs is bottoming out and that the number of US oil rigs is set to rise once again.
Trend Set to Continue
Figures for the end of March and the beginning of April have been the best of 2015 so far, however. Only 20 rigs were lost during the last week of March and just 17 during the first week of April – very few in fact in comparison with the more dramatic losses of 80 to 90 per week during February. The average weekly land rig loss has improved from 80 per week to 35, and there is every sign that this trend is set to continue. It is therefore clear that the situation is beginning to stabilize following the rig losses of the first quarter of 2015.
There are 871 rigs fewer in the US than there were at the last peak of activity in November 2014. This is an overall fall of 47 per cent. Experts predict that the number is likely to remain stagnant over the next few months – possibly drifting lower, but we are unlikely to see a repetition of the dramatic decline of the first quarter.
The picture is a little different in Canada, where contractors are expecting a longer than normal period of losses this spring, exacerbated by the low price of oil this year.
Demand for US Oil Set to Improve
One key area for the US stabilization is the Permian basin, where only five rigs were lost during the first week of the second quarter. The Permian is the most active basin in operation, with 285 rigs currently operating. The Eagle Ford is the second most active with 187 rigs, none of which fell during the first week of April. The Bakken saw six of its 91 rigs fall during the same period.
Phil Flynn, an analyst at Price Futures Group, based in Chicago, said that the market has been more bullish in recent weeks because the latest oil rig count data indicates that demand for US oil is rising.