Energy Stat of the Week by Pavel Molchanov

Energy Stat: How Much Further Will The U.S. Rig Count Fall?

July 15, 2019

After a disappointing May and June, oil prices have firmed up in recent weeks. Even though we expect oil prices will continue to move higher this year, the damage has been done to E&P psyche and we now believe the U.S. rig count will gradually decline for the remainder of the year. In this week's stat, we detail why we now expect the U.S. rig count to decline further, and how recent oil price volatility coupled with capital discipline from E&Ps will delay U.S. rig activity increases untilearly 2020. Specifically, we expect the U.S. rig count to decline by ~40 rigs (or about 4%) through the rest of 2019, before increasing by ~300 rigs (or over 30%) over the course of 2020 on the back of higher oil prices. Overall, we are reducing our 2019 average U.S. rig count estimate from 1015 rigs down to an average of 980 rigs, while the 2020 averages fall from 1200 to an average of 1120rigs. Our new forecast translates to a 15% y/y increase in the average U.S. rig count for 2020. Lastly, contrary to this U.S. slowdown, we still believe international rig activity remains poised fora multi-year recovery, with rig count gains of 7% in 2019 and 8% in 2020.