Rig and spread counts are largely unchanged over the last several months. Rig counts are materially unchanged since September, and spread counts are at the level of two years ago
Rig counts
Total oil rig counts: +6 to 503
Horizontal oil rig counts: +2 to 452
Frac spreads rose last week, +6 to 270, now fully recovered from the winter trough
DUC inventory continues to roll off, roughly at the pace of one DUC per day
DUC inventory for January stood at 12.3 weeks of completions, the lowest in a decade, likely attributable to adverse January weather; February numbers should be more typical of recent times
Both the EIA’s monthly Drilling Productivity Report (DPR) and Short-Term Energy Outlook (STEO) tell a similar story.
The EIA has been calling for a local US crude and condensate production peak since late summer
Notwithstanding, production figures are revised up subsequently, with the peak pushed farther to the right and currently pegged for late last year.
On an eyeball basis, it appears likely that upward revisions will continue through the middle of the year and perhaps into the autumn, but increasingly within a framework of declining production. That is, at some point in H1 2024, the EIA’s peak production number is likely to hold, even in the face of subsequent upward revisions.
Around Q4, upward revisions should cease, and US production will begin to ease down. A price rally would seem to be lurking around that window, depending in part on events in Asia.
The news from China is negative almost without exception, and I think the Chinese economy will continue to struggle.
On paper, China becomes a democracy in the next two years.
Of course, China may also continue to withdraw from the global economy, as it has traditionally during its long history. This is not easy to do with that country’s level of indebtedness, the sophistication of its economy and much of its population, and declining demographics.
Finally, Xi could try the ‘Galtieri Gambit’, launching a war to take over a small island neighbor with the hopes of propping up the autocrat’s popularity, per the Falklands War precedent.
Let’s hope for democracy.