US rig counts are falling in earnest for the first time since early-2020, providing the latest evidence of slowing supply growth in the world’s largest producer.
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US oil & gas producers are pulling back on drilling activity for the first time since the initial COVID downturn—and this could have a dramatic impact on global balances with strong demand growth forecasted for the second half of 2023.
While productivity gains mean that effective rig counts aren’t yet as low as headlines suggest, each idled rig means slower US production growth and this is in the face of the much-depleted inventory of drilled-but-uncompleted wells.
Given the months-long lagged nature of price-to-rig-to-product cycles, it’s not unreasonable to expect further slowing in oilfield activity and ultimately production growth to persist through the remainder of the year until long after prices once again rise to a sufficiently supportive level.
Crude prices are falling and US producers are laying off drilling rigs. For the first time since the early-2020 COVID bust, the US rig count is falling—and this is particularly alarming given the critical importance of US production growth to global market balances. Both the EIA and OPEC still expect US total liquids production to grow by nearly 1 MMbpd in 2023. While base effects and natural gas liquids can still do a lot of the heavy lifting, it will, no doubt, be extremely difficult to hit those optimistic estimates with fewer and fewer rigs in the field.
Now, things aren’t as bad as they likely seem… yet. Productivity gains mean that effective rig counts aren’t yet actually as low as headline numbers suggest and we’re, at worst, still in the very early stages of a slowdown. But, we are certainly not in a good position given a few factors. First, those productivity gains mean that each individual rig lost is more important to production growth today than in the past. Second, the US has very much depleted its once-built-up inventory of drilled-but-uncompleted wells (DUCs). Finally, the months-long lagged nature of price-to-rig-to-product cycles means that we still haven’t even really felt the impact of those early-2023 price declines—and even lower prices are expected to continue pressuring rig counts.