Posted on 12/15/2014 11:04:18 AM PST by thackney
In the US, the land rig count fell 28 units to stand at 1,820 last week. A decline in vertical oil drilling activity took the rig count lower. Horizontal oil drilling (ie activity in the unconventional oil plays) was only down 7 rigs on the week—about in line with normal seasonal trends this time of year.
Much of this week's activity decline was due to a slowdown in conventional drilling in the Permian Basin. The number of vertical rigs in the Permian fell by 13 to 188. The Permian horizontal rig count was only down 7 to 360.
While the Permian is now best known now for its unconventional liquids plays, there is still a great deal of vertical drilling going on in the area. In some cases, this work is being done with older rigs working for smaller operators who contract the rigs on a spot basis and react quickly to changes in oil prices.
As shown above, the Permian vertical rig count has been falling since mid-2012 as horizontal drilling programs replaced vertical ones. The oil price collapse will now start to accelerate the vertical rig count trajectory lower. Downward pressure on vertical oil drilling activity is likely to continue through year-end and 1Q15, while the horizontal leg down will likely begin in earnest in January when 2015 capital budgets and drilling programs kick in.
The land rig count is still up 117 units from year-ago levels. Those gains are now at risk given the crude oil-sell off as the rise has been driven by horizontal drilling increases in oil plays. We expect the horizontal rig to fall 20-25% from current levels by the end of 1H2015, a prediction we originally made almost a year ago.
A regional summary of rig counts by key basins is below. The Permian remains the most active region with 548 rigs this week (-20) followed by the Eagle Ford with 204 active rigs (-2). The Permian Basin is up 71 rigs year-over-year, leading all basins in growth.
The rig count in Canada stands at 431 units, up 9 rigs this week. The Canadian rig count should begin its normal seasonal decline for the holidays in the next week or two and then rebound for the rest of the winter drilling season.
Predictive value can be found in charting rolling average weekly rig count changes. Normalizing week-to-week noise, this exercise exposes whether up or down rig count trends are intensifying, weakening, or inflecting. Below are three charts we will be watching closely for directional clues in the weeks ahead. These charts are now showing a material loss in momentum and foreshadowing a decline in the rig count next year.
Our war with the Cartel is just beginning.
Biota from the past fueling the present. And the guts from the present in teasing it out.
Isn’t this how the Arabs shut down our oil production back in the 1970’s? Sure, American oil companies can always start the wells back up, unless they go bankrupt waiting for the price to go back up.
Have no clue how deep it will go this time around.
I see the market and industry far to different from 1970s to make any reasonable comparison. You’re going back to the time of the Seven Sisters.
I'm referring to the time of James Earl Carter, when the economy and confidence in our president and congress sucked. Quite similar to today.
I think our government did more lasting damage to the US oil industry from that time than OPEC began to do.
Fear the response that the Federal Government needs to save us from low prices.
How much lag is there to restart? That’s my fear when the pendulum swings back is there a shortage due to ramping back up.
I would say that is a normal part of a dip this fast and this deep.
If the Fed and state governments would lower the taxes on each gallon, it could spark an economic boom that could help drive up the prices enough to “sustain”(I usually hate hearing that word) US oil production.
US gasoline price has already dropped nearly twice the average fuel tax.
Where is the economic boom from that?
It’s coming. There’s a lag. Lower prices always lead to more consumption. Always.
Is that what happened in 2009?
There was a recession then. Not so now.
Much of the Shale oil Boom was financed thanks to ZIRP, and junk bond financing. Some 18% of all US High-Yield bonds are currently in Oil and Energy Exploration.
ZIRP destroyed the most fundamental index in the financial universe: the true cost of borrowing money. The truth of Basic Math is beginning to take over.
Why do you think the global oil demand is stagnating?
High prices, at least until late summer. There is a lag, I believe. As there will be a lag in the consumption increase. Once folks get a bit used to it, they’ll drive plenty. Always have.
But this oil price drop is primarily, but not exclusively, a supply issue. The near-doubling of US production in the past several years is to “blame.”
In my opinion, you give far too much weight to the US gasoline consumption rate towards the global price of oil. And it doesn’t fluctuate nearly that much.
The price hasn't fallen enough yet to spark an economic boom. Cutting gas tax will drive the cost of gas lower without hurting oil production. Letting the barrel of oil price drop more will only hurt US oil production. Fracking can't continue below $50 a barrel.
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