Rig Index Drops Sharply Once More, Causing Late-Day Rally In Oil Price

Rig Index Drops Sharply Once More, Causing Late-Day Rally In Oil Price

30th January 2015

GCA’s U.S. Oil & Gas Monitor continues to show the U.S. rig activity tracking closely the 2008-2009 decline trend.  Based on the Baker Hughes rig count, there was a weekly fall of 85 in the U.S. onshore rig count, with this now having declined by 382 from a year high of 1,876 in November 2014 to 1,494 on 30 January 2015.  

The GCA Indices for rig count and oil price are a comparison of today’s data with the average in the three month period April to June 2014.  Changes this past week place the GCA Index for U.S. onshore rigs at 83, 21 points down on the 2014 high and 5 points down on the previous week. 

The news appears to have caused a late day U.S.$3/Bbl to U.S.$4/Bbl rally in the price of oil, with GCA Index for the Brent oil price jumping four points to close at 48.  Up to that point the price had spent the week bouncing around in the US$ 48/Bbl to US$ 50/Bbl range as it had for most of the past three weeks.  It remains to be seen whether this rally will be sustained during the coming week or weeks, or if it simply represents a temporary spike.  The real issue is the manner in which the fall in rig count will translate into a drop in production.  GCA is currently working on a forecast for this, which it hopes to release within the coming week.

The rig count and indices for the GOM showed it first real reaction to the price crash, losing 6 rigs, all oil, and representing a sharp decline of 11 index points overall (14 in the oil rig count).

The trends can be seen clearly if oil price and rig count indices from 1 July 2008 to 31 December 2009 are plotted on the same scale range as the current oil price and rig count indices.  The current oil price fall has been shallower than in 2008 to date and, despite the late rally on Friday, it is by no means clear it has reached bottom or has resumed an upward trajectory.  The rig count index itself has sharpened its fall, moving closer to the full effect of the fall seen in 2008-2009, similarly displaced 5-6 months from the decline in oil price.

Looking more specifically at the rig count changes in the major onshore basins (Permian, Eagle Ford and Williston Basin), where unconventional (tight and shale) oil are being developed, the drop in the GCA Index continues to slightly exceed that for the overall onshore picture.  Basin indices are between 21 and 28 points off 2014 highs, compared to 21 for the whole onshore US.  

The rig count in these basins is down 37 in the week, with the GCA Indices now ranging from 77 (Eagle Ford) to 83 (Permian), the latter suffering the largest decline this week with a significant 25 rigs being cut.  The GCA Index for all three basins combined is 81, a drop of 4 points in the week.


Rig Index Drops Sharply Once More, Causing Late-Day Rally In Oil Price

Neil Abdalla

Senior Professional, Geoscientist - neil.abdalla@gaffney-cline.com
Rig Index Drops Sharply Once More, Causing Late-Day Rally In Oil Price

Cecilia Jing Cui

Consultant, Petroleum Economist - cecilia.cui@gaffney-cline.com

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