Energy Stat of the Week

Energy Stat: Lowering Late 2017 Rig Count, but 2018 Activity Still Poised to Surge
August 14, 2017

Over the past several months, oil traders have become increasingly focused upon the U.S. rig count as a leading indicator of future U.S. oil supply growth. Fueling the bearish oil fervor over the first six months of this year, the U.S. rig count grew (on average) by an astounding ~50 rigs per month and rose 21 of the first 22 weeks of the year. Surprisingly to most traders, this growth persisted in the face of a steady bleed off in oil prices. Given the oil market’s current hyper-focus on the U.S. rig count, we now believe one of the key catalysts to drive oil prices higher will be evidence that U.S. operators are reducing drilling in response to depressed oil prices. In this week’s “Stat” we will focus upon our recently revised outlook for the U.S. rig count. Specifically, we now think the U.S. will likely see a modest 100 rig decline in activity in the back half of 2017 before moving sharply higher in 2018. Of course the expected 2018 surge is spurred by our outlook for meaningfully higher oil prices next year. It is important to note that our expectation for the average annual 2017 and 2018 rig counts have not changed, but we have changed the profile of the expected U.S. rig count going forward. The graph below shows the adjustment that we have made to our U.S. drilling activity forecast.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

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Marshall Adkins

J. Marshall Adkins
Director of Energy Research