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The weekly US rig depend data, revealed on Friday, have generated considerable pleasure within the oil markets lately, with the numbers released by oil-providers group Baker Hughes shifting crude prices.
What’s going on?
The numbers identify the extent of drilling activity and have traditionally been thought to be a gauge for the well being of the US oil business. They have come beneath the spotlight since the oil markets have tanked and traders and buyers strive to determine what low costs mean for US shale production. The most recent figures showed that oil rigs have fallen 24 per cent from the current peak of 1,609 in October final 12 months. Final Friday’s figures were notably stark, with 7.1 per cent of all US rigs idled in a single week.
Okay, however what’s a rig, exactly?
These are not the big oil platforms within the North Sea or the Gulf of Mexico. They’re used to drill wells, from the place the oil is extracted. After the drilling is accomplished, a rig will likely be moved off site and the effectively topped by a wellhead. So rig rely displays exploration and growth of oil and gasoline wells slightly than precise production.
However is it still a number one indicator of what’s about to happen to the oil and gas sector?
The data are an excellent benchmark of the well being of exploration and manufacturing firms, as well as the oil-companies teams. And sure, they offer you some path of oil production.
However be warned, not all rigs are the identical. Technological advances in drilling imply that each one sorts of productivity will increase have been made over the previous few years and that you could look below the headline numbers. For instance, horizontal drilling, along with hydraulic fracturing, or “fracking has led to big output will increase in shale oil and gas production. But rig count numbers present the number of rigs drilling horizontal wells has not fallen as much as other standard rigs.
What do you imply by horizontal drilling?
A rig drills down to the layer of oil or fuel-producing rock formation. In comparison with a vertical effectively, whose access to the oil-producing rock is restricted, with a horizontal properly, the drill makes a turn into the layer. The technology has enabled more production and its evolution continues.
To date, the numbers of rigs which can be drilling vertical and directional (those dug at slight angles) wells have fallen faster than that of horizontal ones. Morgan Stanley says that since mid-October oil rigs drilling horizontal wells have fallen only 16 per cent, compared with forty one per cent for vertical and directional. The financial institution additionally points out that a lot of the rig-depend falls have been in regions which might be less productive than others.
Then ought to we be taking a look at rig counts at all?
Yes, but do handle the information with care because the correlation between rig count and production has develop into increasingly much less straightforward.
Some analysts point to the pure gasoline example, where US rig counts started to fall in 2009 however production failed to decline as much. With drilling expertise persevering with to advance leading to more production effectivity, output could not fall as much as the headline rig count suggests. In actual fact, Citigroup forecasts that without a “sizeablelower in rig counts on the leading shale regions, Bakken, Eagle Ford and Permian, production may still proceed to rise.