This Chart Shows Why the Number of Oil Rigs May Not Matter Anymore
Rig history repeats itself
The number of oil rigs drilling new wells in the U.S. has collapsed at an unprecedented rate. The weekly number has gathered a huge following as investors try to figure out when the crash in oil prices has reached its bottom. Strangely, the number may be irrelevant.
Rig counts have long been used to help predict future oil and gas production. In the past week drillers idled 98 rigs, marking the 10th consecutive decline. The total U.S. rig count is down 30 percent since October, an unprecedented retreat. The theory goes that when oil rigs decline, fewer wells are drilled, less new oil is discovered, and oil production slows.
But production isn't slowing yet. In fact, last week the U.S. pumped more crude than at any time since the 1970s. “The headline U.S. oil rig count offers little insight into the outlook for U.S. oil production growth,” Goldman Sachs analyst Damien Courvalin wrote in a Feb. 10 report.
We've seen this before, in natural gas. The chart below shows a striking separation between natural gas production, in orange, and natural gas rigs, in blue. The massive increase in efficiency this represents helped fuel the U.S. fracking boom and has led to some of the world's lowest prices in natural gas, in gray.
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http://www.bloomberg.com/news/articles/2015-02-13/this-chart-shows-why-the-number-of-oil-rigs-may-not-matter-anymore
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