Wednesday, March 28, 2012
The above chart shows the total number of oil and gas drilling rigs operating in the United States, by week since 1987 (source: Baker Hughes). You can see the shale gas boom of the mid 2000s, which has fallen off since with lower natural gas prices. You can also see the truly massive run-up in the count of oil rigs since 2009. This drilling boom is what has driven the increase in recent US production, and caused the spread between WTI and Brent oil prices, as the infrastructure has failed to keep up with the increase in production.
It's important to note that while the recent increase in all-liquids US production is really quite marked:
the increase just in crude oil production is much less so:
It's interesting to plot the rig count against the changes in oil production:
Here the rigs are the blue curve on the left scale, while the production change (percentage over prior year) is the red curve on the right scale. During most of the last few decades, production and rig count were both declining (as prices were not high enough to support aggressive exploitation of the remaining high cost reserves). The rig count began increasing in the mid 2000s and this led to some pretty noticeable production increases starting in about 2008.
Now the rig count has gone vertical and one assumes that most of the production increases from that are still to come. However, the correlation between the rigs and production changes is quite weak so I don't think this leads to a clear quantitative prediction.
Still, I have to wonder whether the WTI-Brent spread is going to be with us for a little while longer.