Last week’s US oil rig countsignalled a shift for the energy industry.
Data from driller Baker Hughes showed that the oil rig count fell by just 1. Although it was the 24th straight week of a decline, it was the slowest pace we’ve seen in this streak.
In a note published Friday, Goldman Sachs’ Damien Courvalin and Raquel Ohana further point out that the horizontal oil rig count actually increased by four, the first such weekly increase since November 26.
And this is a sign that drillers are starting to change their behaviour, following the oil price crash, which forced companies to shut down money-losing oil production projects.
“We believe that should West Texas Intermediate crude oil prices remain near $US60/bbl, US producers will ramp up activity given improved returns with costs down by at least 20%. Last week’s rig count is a first sign of this response and suggests that producers are increasingly comfortable at the current costs/revenue/funding mix.“
They assume that production will fall slightly through Q2 and Q3 before picking up in 2016 at the current rig count level, which could turn positive in the coming weeks.
On Tuesday morning, WTI was down by less than 1% at around $US59.31 per barrel.
This chart shows Goldman’s forecasts of US production at the current rig count level:
And here’s the chart of the decline in the rig count that’s starting to flatten ever so slightly: