Rigs and Spreads Feb. 3: Worrying

Rigs counts were down

  • Total oil rig counts fell sharply, -10 to 599

  • Horizontal oil rig counts also fell, -4 to 556

  • 3 of 4 lost horizontal rigs were from the Permian.  Worrying.

  • The pace of horizontal rig additions fell to -1.75 / week on a 4 wma basis

  • The rig count has been eroding now for 2½ months

  • The calculated US breakeven to add horizontal oil rigs fell to $73 / barrel WTI versus $73 on the screen at writing.  

  • Frac spreads fell, -8 to 270, still no higher than a year ago

    • As with rigs, the local peak was reached on November 25th at 300 spreads.  

    • At current rig and spread counts, at latest productivity levels, DUCs appear to be falling once again

  • The data suggests the US shale sector is at a turning point

    • WTI has averaged $85 / barrel (with a lagged value) during the last ten weeks in which rig and spread counts have been declining.  This is a high price by historical standards.  Nevertheless, declining rig counts say it is not high enough.

    • This development is unprecedented since the beginning of the shale revolution for oil, around 2010. In 2018, for example, the rig count was rising at $60 / barrel; now it is falling at $85 / barrel, and from a lower level

    • The latest US data for November and December show declining oil production, down about 300 kbpd compared to October.  This is historically unusual.

    • Trouble is brewing.