Saturday, January 3, 2015

Oil rig count continues to fall


The latest Baker Hughes rig count data showed that the total number of US rigs in operation — which includes both oil and gas rigs — fell by 35 last week, to 1,840 from 1,875. This report is  usually released on Friday afternoons, but was released on Monday due to last week's Christmas holiday.

This is down from 1,920 for the week ended December 5. Oil rigs in use fell by 37 last week, while gas rigs actually rose by 2.

The current oil price will not allow for a decent return on capital from most shale drilling. Therefore drilling will continue down until supply is constricted enough to meet demand. This is my mantra of "the cure for low prices is low prices" in action. For those not aware of how supply and demand works you will get to watch an exercise in economics in real time. At some point because of lack of investment and depletion the oil price will rise again. That is when the big money will be made as oil is necessary for life itself. In the meantime enjoy lower gas prices because they will not last.

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