The weekly US oil rig count (illustrated in the chart) is likely to attract increasing interest as an indicator of oil market adjustment

John Robertson

PortfolioDirect

The weekly US oil rig count (illustrated in the chart) is likely to attract increasing interest as an indicator of oil market adjustment. The number of operating onshore rigs has fallen 20% since mid November. The first reaction of the industry to lower prices is to pump harder. Then, planned investments in new rigs will be postponed or cancelled. Next, existing wells approaching the end of their working lives will be shut off. If more must be done to rebalance the market, other operating rigs will be cut. Debt funded companies will try to keep pumping to service their interest payments but will find it harder to finance new developments. They will face a large cut in rigs with a lag as existing rigs move toward the end of shortened productive lives. This adds up to the possibility of large and possibly occasional falls in rig numbers spread over months. The oil rig dynamics could spur additional oil price volatility as traders respond to the ebb and flow in the numbers.


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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...

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