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Oil Ends Down as U.S. Rig Count Jumps Double-Digits

CommoditiesAug 21, 2020 04:11PM ET
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© Reuters.

By Barani Krishnan

Investing.com - Oil prices settled lower on Friday after data showed the U.S. rig count jumped double digits  this week, suggesting crude drillers in the world’s largest producing country were adding to output despite a questionable demand outlook amid the coronavirus pandemic.

Rigs actively drilling for oil in the United States stood at 183 this week, versus last week’s all-time low of 172, oil services firm Baker Hughes said in its routine survey. 

Baker Hughes had not reported a single oil rig addition since February, even before the coronavirus outbreak in the United States which decimated demand for energy. It has been more than a year since there was a double-digit rise in rigs. 

The surge in rigs suggest that U.S. oil drillers were getting comfortable with crude prices at around $40 per barrel.

History has shown that rig additions, once they begin, can quickly rise in shale oil patches. The result typically is higher production than the market can bear, a phenomenon that ultimately weighs on crude prices. The U.S. oil rig count stood as high as 1,606 in 2014, triggering a price crash that took crude to around $25 per barrel two years later from previous highs above $100.

In Friday’s trade, New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled down 48 cents, or 1.1%, at 42.34 per barrel.

London-traded Brent, the bellwether for global crude prices, fell 55 cents, or 1.2%, to close the New York session at $44.35.

For the week, WTI rose 0.8% while Brent fell 1%.

Even before the Baker Hughes data release, crude prices were trading down on the day on reports of a ceasefire in oil-rich Libya — a development that looked set to increase global production and ruin OPEC’s 97% compliance rate on an oil production cut agreement.

OPEC, or the Organization of the Petroleum Exporting Countries, has 13 members led by Saudi Arabia. It also has 10 non-members allies that include Russia. It announced this week that demand for oil could be slower than expected, despite production cuts by its enlarged OPEC+ group.

Oil Ends Down as U.S. Rig Count Jumps Double-Digits
 

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Comments (9)
Stephen Cassar
stephen87 Aug 22, 2020 3:25AM ET
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Morning barani, headaches for opec again, 2m over compliance by opec members, increase production by opec members of 2mbpd increase of oil rigs by shale , winter is coming and another cocktail seems in the making for now.
Peter Dikeakos
Peter Dikeakos Aug 22, 2020 2:46AM ET
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Government is buying Oil and Texans' votes. Crash after Elections.
Gary Friauf
Gary Friauf Aug 21, 2020 8:59PM ET
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Could the tropical storms and hurricanes be a reason for the uptick in rigs? Possibly the concern of losing some production time?
Gary Friauf
Gary Friauf Aug 21, 2020 8:59PM ET
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Off shore I'm thinking
Barani Krishnan
Barani Krishnan Aug 21, 2020 8:59PM ET
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Gary Friauf  Very possible. We'll have to see next week's data, if there's another uptick.
znao sam
znao sam Aug 21, 2020 5:00PM ET
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🤣🤣🤣🤣🤣🤣🤣🤣🤣I think that you need to throw your keyboard in garbage
Barani Krishnan
Barani Krishnan Aug 21, 2020 5:00PM ET
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🤣🤣🤣🤣🤣🤣🤣🤣🤣I think we need to throw you out of the Investing forum :)
Barani Krishnan
Barani Krishnan Aug 21, 2020 5:00PM ET
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It will be one less piece of trash commentary this forum doesn't need.
Bijoy Gajjar
Bijoy Gajjar Aug 21, 2020 3:44PM ET
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this is positive.. traffic is back on road.. they saw demand so started working on getting rigs back.. at least those who are happy with future stripe.
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Bijoy Gajjar
Bijoy Gajjar Aug 21, 2020 3:44PM ET
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45 to 65.. kinda uptick. . not sure why 4x or 6x is shown.
Barani Krishnan
Barani Krishnan Aug 21, 2020 3:44PM ET
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Bijoy Gajjar  There could be a game changer between now and November. There is an entire nation's production being stifled by OPEC's nefarious master Saudi Arabia. That 1.5-2.0 million barrels per day could easily upset OPEC's apple cart. Lots of variables at play. I have watched this game for 20 years. Never be too sure of anything. While I'm open to prices north of $50, you should keep the bar low on triple-digits. Shale is here to stay, come Biden or whomever. It's just politics you're seeing now. No one will ***the golden goose of US energy independence, which incidentally begin under Obama, NOT TRUMP. There will be plentiful supply going forth if democracy is allowed back into OPEC. Demand? Probably as the world economy picks up, yes. But I still think supply will stay well ahead, keeping a lid on prices.
Thom Miller
Thom Miller Aug 21, 2020 3:44PM ET
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Barani Krishnan Well said! Especially the part about the US energy independence taking very deep root during the Obama administration. Either the naysayers never figured that out, or Trump has them convinced to never openly admit it. And I hope you’re right about $50 oil. I think the stock markets could benefit from that.
Bijoy Gajjar
Bijoy Gajjar Aug 21, 2020 3:44PM ET
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Barani Krishnan  Thank you for your insight. Barani Sir - I think we may see 50 as soon as September.. These Laura and other Storm may be game changer, Production will fully stop and next week API & EIA will fire OIL up. . I think we may see 45 as soon as this week.. People may think this is temporary bump due to storm and try to short it but it wont retrace.. Analogy: I recall one of major change in airline industry that they started charging for Baggage extra especially when OIL went above 100/ However later in days, when Oil crashed or what not, they never reverted back their baggage charges.. This is exactly how OIL will never retrace IF it jumped due to Storm related cuts.. Again childish analogy but overall this is going to help OIL to make it to 50 - 55
Barani Krishnan
Barani Krishnan Aug 21, 2020 3:44PM ET
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Bijoy Gajjar  It's still early in the day for oil. Read this excellent piece from Rystad, which to me is still missing one great element -- peace with Iran and a return of some 2 mln bbls to the market under such a scenario that could keep oil range bound on the lower side: https://www.hellenicshippingnews.com/us-presidents-and-oil-production-a-deep-dive-into-obama-and-trump-records-bidens-proposed-plan/
graham Blake
graham Blake Aug 21, 2020 3:29PM ET
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This has literally no effect on price.
Barani Krishnan
Barani Krishnan Aug 21, 2020 3:29PM ET
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Wait for the weekend research from various outlets for a better perspective.
Ted Dirty
DirtyTed Aug 21, 2020 2:21PM ET
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so the rig operators have a perspective for increased demand...otherwise they would have not restarted the rigs
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Barani Krishnan
Barani Krishnan Aug 21, 2020 2:21PM ET
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DirtyTed, it's the $40 per barrel price. They are betting it will go higher. It may be stuck here a long time. To me, fair value is closer to $30+. $20 is too low. Around $30+ per barrel till pandemic sorts out would be right.
CrudeX Labs
CrudeX Labs Aug 21, 2020 2:21PM ET
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That explains the sharp recovery after rig count data came out. From record low numbers to suddenly rise in rigs. market took it as demand booster and you saw the result :)
Barani Krishnan
Barani Krishnan Aug 21, 2020 2:21PM ET
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CrudeX Labs  You can read it either way. Conventionally, higher drilling relates to higher production that may not necessarily lead to higher exports. US crude exports have been picking up but global demand indicators are still suspect based on IEA data.
Plopseven Schwartz
Plopseven Schwartz Aug 21, 2020 2:21PM ET
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Llewellyn Kruger They might be under obligations from taking loans earlier this year to bring their workers back or pay back their loans. If their loss from re-opening and paying their workers is less than that of repaying their loans, they’ll re-open and drill at a loss. It’s business.
Ted Dirty
DirtyTed Aug 21, 2020 2:21PM ET
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The oil demand is down at most let's say 10%...the price is still down 25% ytd...so obviously the price still has room to climb...below $40 even major producers are heading towards bankruptcy.
SAJJAD JAVADLOU
SAJJAD JAVADLOU Aug 21, 2020 2:07PM ET
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Alan Rice
Alan Rice Aug 21, 2020 2:07PM ET
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hello.
Christopher Jenkins
Christopher Jenkins Aug 21, 2020 1:49PM ET
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Notorious oil bear looking for anything to hang his hat on to justify his continued bearish outlook!
Barani Krishnan
Barani Krishnan Aug 21, 2020 1:49PM ET
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Facts. Follow the facts.
 
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