Oil has been on a roller coaster ride for the past two years. In 2014, oil was hitting heady highs of over $100 a barrel… It could do no wrong… Until the market crashed. Oil steadily fell, until it hit lows in February of 2016 of under $30 a barrel.
We had too much oil.
After the 2014 highs oil flooded the market, and prices quickly fell as demand dropped. We had an oil glut.
The rig count and oil have always had a cyclical relationship, and as oil fell, so did the rigs.
The oil and gas industry knows there’s no point in drilling for oil if you can’t come out even.
The rig count in the U.S. dropped to 320 in May of 2016…
In September of 2014, we were seeing rig counts of over 1,500…
Headlines were screaming doom and gloom:
Reuters: U.S. oil and natural gas drilling rig count at record low
CNNMoney: U.S. oil and gas rigs fall to 70-year lows
Oil&Gas Journal: US rig count hits all-time low in recorded data
The rig count numbers in the spring of 2016 were at the lowest since Baker Hughes Inc. began reporting numbers in the 1940s, with Oil & Gas writing, “[oil was at it’s lowest ] since the infancy of US oil and gas industry in the mid-19th century.”
It was a bad time to be in oil.
Investors were jumping ship.
But luckily for those of us who stayed on board, we’ve seen a jump in oil, and we don’t think it’s just an anomaly.
In the fall of 2016, OPEC members Saudi Arabia and Iran agreed with non-OPEC member Russia to cut oil production to try to boost prices. This was big for the oil world as these three countries produce about one-third of global oil.
Oil prices have slowly crept up…
And so has the rig count.
The Baker Hughes rig count report showed that the rig count is currently 729, up 17 from last month, and up 158 from this time last year.
What does this signal?
That drillers think oil is on the road to recovery from the bear market.
They’re turning bullish, enough that they are increasing the number of rigs that are drilling. According to wtrg.com, “Year-over-year oil exploration in the U.S. is up 24.8 percent. Gas exploration is up 39.4 percent. The weekly average of crude oil spot prices is 70.6 percent higher than last year and natural gas spot prices are 48.3 percent higher than last year.”
As we’ve seen, drillers aren’t willing to increase the rig count unless they see a bright future for the oil industry, so with the rig count increasing every month we see sunny skies ahead for oil.