Oil Exploration And Production Is Sinking

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There are 520 fewer rotary rigs in operation in the United States today as compared to this time a year ago. This stupendous drop illustrated in the graph on the right, is picking up speed, as 57 rigs were shut down in the most recent week that Baker Hughes counted.

A rotary rig “rotates the drill pipe from surface to drill a new well (or sidetracking an existing one) to explore for, develop and produce oil or natural gas,” according the Baker Hughes site. It is a useful shorthand way of keeping track of oil exploration. With oil companies reeling, many are cutting their expenditures on such operations.

Last week, Environmental Capital tried to argue that oil prices would rise because supply was now limited. Today oil sank again, on concerns about the economy. (When aren’t we concerned about the economy nowadays?) FT’s Alphaville is making the same argument by highlighting this Baker Hughes chart.

They say that this shows “just how much production has been taken out of the oil market in the US, and why with the combined cuts out of Opec, a new supply/demand balance may indeed have finally been reached.”

Oil’s playing with $40 today. People aren’t taking note of the supply cuts apparently. Or maybe, those in the oil trade see things getting much worse before they get better and therefore demand is going to fall further. Or, our theory: Nobody knows what’s going on anymore. It’s a rollercoaster and we’re just hoping for the best.

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