WTI Above $60 Will Drive Rig Increase

Baker Hughes Rig Count vs WTI Monthly Peak Price 

EIA Monthly Crude Prod

Many are worried that as soon as WTI tops $40 it will bring a flood of rigs back to work and a surge in US oil production with it.  In fact some writers have been driving these fears with articles claiming this is the case.  However, US producers actions from last year and from 2009 do not support this assertion.

Oil Traders Mindset Needs to Change

Additionally, an article in Investors Business Daily quoted the CEO of EOG stating that they would not look to increase production until prices topped $60 and they felt confident they would stay there.

The chart above clearly shows producers waited about 2 months in the spring/summer of 2015 to start increasing rigs.  What has changed so dramatically in 9 months to change that.  Producers still have a large backlog of uncompleted wells, DUCs.  North Dakota reports a backlog of almost 1000, Texas likely has 2 to 3 times as many.  On top of that producers are just a month away from a period where they dropped 20% of working rigs in a single month and are still dropping 2%/week or 8-10%/month.

Granted the rig count is much lower now than June 2015, with only 386 rigs working the week of 3/11/2016 compared to 628 the week of 6/26/2015.  However, oil companies do not make decisions to idle rigs and lay off workers or restart rigs and hire workers lightly.  The last thing these companies want to do is flip back and forth between hiring and firing every few months.  They want to have a stable and consistent workforce.

In investing they always say past performance is not indicative of future results.  But in this case the signs point to more rig counts until the weekly rig count report says otherwise.