Rigs took a pause this week within the wider context of nine months of nearly continuous roll-offs. In my last report from August 11, I noted that spreads at the time were too high at 262. This number has plummeted to 244 in the intervening three weeks, with horizontal oil rigs easing back by just 7 over the same period. As a result, rigs and spreads are now largely in balance, suggesting that the chronic erosion of DUC inventories may be ending. With the breakeven to add rigs running around $76 WTI and the WTI currently holding a pricey $86, the prospects for a rebound in rig counts are improving. We may be approaching the end of the mini-cycle begun last December. Maybe. We don't yet have enough data to call a trend, but it feels like we may be at an inflection point, or at least a mini-inflection point.
Rig counts
Total oil rig counts were flat at 512
Horizontal oil rig counts were flat at 463
The Permian horizontal oil rig count was down 2.
The Canadian horizontal oil rig count was again looking frail, down 25 from last year. Whatever is going on in the US oil patch has now officially spread to Canada
The US horizontal oil rig count rose to -2.0 / week on a 4 wma basis.
This number has been negative for 39 of the last 40 weeks
Frac spreads fell, -2 to 244. Spread numbers are back to the level of January 2022. Not great.
DUC inventory came in at 17.9 weeks, the highest in more than a year
This recovery suggests a change of sentiment in the oil patch, that operators may decide to no longer pursue a policy of DUC inventory liquidations
On the other hand, this recovery has been driven by a collapse in the spread count, not as a result of a surfeit of rigs over spreads. In any event, it feels like a change in the weather. The coming weeks will tell us more.
In the August DPR (admittedly published two weeks ago), the EIA sees July crude and condensate production from key shale plays rising to 9.25 mbpd, up 6 kbpd from June
Permian production actually fell in July, down a marginal 1 kbpd over June, and in July was 11 kbpd lower than its March peak.
The minor plays are up marginally over the period, supporting modest shale oil production growth in aggregate.
The ‘peak shale’ thesis appears to be holding up.