Rigs counts once again saw a glimmer of hope this week.
Rig counts
Total oil rig counts: +1 to 502
Horizontal oil rig counts: +0 to 449
The Permian horizontal oil rig count: +1
The Canadian horizontal oil rig count saw a solid progress this week, +4 to 118, but is still 17 below this week last year
The US horizontal oil rig count is falling at a pace of -0.5 / week on a 4 wma basis.
This number has been negative for 46 of the last 47 weeks
If the rig count change is zero or higher next week, then the 4 wma change in rig counts will turn positive for the first time in 11 months
Frac spreads rose, +6 to 269
There is a stark mismatch between rigs and spreads now, with DUC inventory, as measured in days of turnovers, falling to 14.3 weeks. This the lowest since the early days of the shale revolution
The rig/spread relationship is now clearly unstable
To attain stability in the DUC count, rigs must either rise by 75 or spreads must fall by 38. This is the most distorted this number has been since the height of the pandemic.
If the breakeven to add rigs of $83 holds, then we should see appreciable rig additions in the coming weeks.
On the other hand, we have only two weeks of positive data on rigs, which could easily prove a false dawn. If that’s the case, then at some point, spreads will start to fall off dramatically
The EIA issued the October DPR this past week
In the October report, September crude and condensate production from key shale plays fell to 9.47 mbpd, down 34 kbpd from August.
However, total August C+C shale production was revised up a whopping 237 kbpd, and the May-August period was revised up by an eye-popping 182 kbpd on average
Having said that, revisions have been so large lately that my confidence in reported numbers is at a low at present.
As I noted last week, the EIA has been on a revision spree lately – which happens sometimes – but it does make the data hard to interpret, and reliable month-to-month comparability may not be restored until early next year.